Cautious rhetoric from the US Federal Reserve, suspected currency interventions by Tokyo, and ongoing escalation in the Middle East emerged as the primary drivers of the past week. The oil shock continues to feed global inflation risks, forcing central banks worldwide to reconsider their interest rate trajectories.
Here's a recap of the key economic developments and asset price movements over the past few days.
Greenback under pressure: The US Dollar Index dropped by more than 1% for the week, falling toward the 100 mark. The decline was prompted by a cautious stance from the Fed and foreign exchange interventions by Japan.
Fed pause: The Federal Reserve left interest rates unchanged despite inflationary pressures stemming from the conflict with Iran, with three FOMC members voting in favor of a rate hike. Markets are currently pricing in roughly a 63% probability of policy tightening in September.
Bessent's statements: US Treasury Secretary Scott Bessent stated that the Japanese yen is significantly undervalued, describing excessive market volatility as "unhealthy."
Strong GDP growth: Eurozone Q2 GDP expanded by 0.4% QoQ (doubling forecasts) and 1.8% YoY, outperforming the US economy (1.6%).
Euro price action: The EUR/USD pair held firm above 1.150, logging a monthly gain of 0.8%.
ECB expectations: Accelerating inflation and resilient business activity are prompting investors to price in an ECB rate hike as early as September, with another one expected before year-end.
Bank of England pause: The central bank kept its benchmark interest rate unchanged for the sixth consecutive meeting.
Slowing inflation: June data revealed a deceleration in UK price growth, reducing the number of MPC members in favor of immediate policy tightening.
Pound dynamics: The GBP/USD pair demonstrated impressive gains midweek, capitalizing on broad-based weakness in the US dollar.
Rate at 1995 highs: The Bank of Japan maintained its policy rate at 1.0% by an 8-1 vote. Meanwhile, the central bank raised its fiscal year 2027 inflation forecast to 2.4%.
Tokyo interventions: Suspected intervention by the Japanese Ministry of Finance triggered a sharp 3.3% plunge in the USD/JPY pair on Thursday, putting heavy downward pressure on the US Dollar Index.
Aussie near six-week high: The AUD/USD pair climbed above 0.700 on USD weakness. Weak Australian inflation figures dragged the odds of an August RBA rate hike down to nearly zero, though central bank officials leave room for rate increases before the end of the year.
Resilient Kiwi: The New Zealand dollar gained over 1% on the week and over 3% in July, holding close to the $0.587 mark. Positive sentiment was supported by rising consumer and business confidence, with the ANZ index rising to 99.3. Markets are 100% pricing in an RBNZ rate hike in September.
Strong monthly rally: Brent crude pulled back to $82–86 per barrel on Friday, but is closing out July with a powerful rally of more than 20%.
Middle East factor: Fresh US strikes against Iranian targets diminished hopes for a diplomatic resolution. Despite a partial recovery in tanker traffic through the Strait of Hormuz and talks in the Red Sea regarding a naval coalition, supply disruption risks—including Black Sea terminal shutdowns—remain elevated.
Gold below $4,100: The metal paused its advance on Friday, yet finished July in positive territory for the first time in five months.
Silver near $58: Following a 20% slide in June, silver stabilized and is ending July largely unchanged.
Interest rate pressure: War in the Middle East and elevated oil prices continue to fuel inflation. Expectations of Fed tightening and rising bond yields limited upside potential for precious metals.
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