IC Markets Europe Fundamental Forecast | 29 August 2025

IC Markets Europe Fundamental Forecast | 29 August 2025

What happened in the Asia session?

The Asia session on August 29, 2025, was characterized by significant macroeconomic data releases that drove currency and market volatility. Japan’s moderation in Tokyo CPI, despite remaining above the BoJ’s target, sparked yen strength as markets speculated about future monetary policy tightening. South Korea’s broad-based economic improvement across industrial production, retail sales, and facility investment provided a positive regional backdrop.

Meanwhile, Chinese banks continued to face structural headwinds from margin compression and asset quality concerns. The USD/JPY pair’s weakness below 147.00 was the most notable market move, driven by the interplay between Japanese inflation data and hawkish BoJ sentiment, making it the primary financial instrument impacted by the day’s developments.

What does it mean for the Europe & US sessions?

Today’s trading sessions face a confluence of significant factors: near-certain Fed easing expectations, critical European inflation data, mixed signals from corporate earnings, and ongoing geopolitical uncertainties. The German flash CPI release will be particularly important for European markets, while traders continue to digest Nvidia’s earnings and position for the Fed’s preferred inflation data tomorrow. The combination of dovish central bank expectations and mixed economic signals suggests heightened volatility remains likely as markets navigate the final days of August’s traditionally turbulent period.


The Dollar Index (DXY)

Key news events today

Core PCE price index m/m (12:30 pm GMT)

Revised UoM consumer sentiment (2:00 pm GMT

What can we expect from DXY today?

Friday, August 29, 2025, represents a critical juncture for the U.S. dollar as multiple headwinds converge. Trump’s assault on Fed independence, combined with rising recession risks and persistent inflation, has created a perfect storm of dollar weakness. The DXY approaching 98.00 support with 89% odds of September rate cuts suggests the dollar’s decline may continue. Key data releases, particularly the PCE inflation report, will be crucial in determining whether the Fed moves aggressively or maintains a cautious approach. The unprecedented political interference in monetary policy marks a potential turning point in dollar dynamics, with implications extending far beyond typical economic cycles.

Central Bank Notes:

• The Board of Governors of the Federal Reserve System voted unanimously to maintain the Federal Funds Rate in a target range of 4.25% to 4.50% at its meeting on July 29–30, 2025, keeping policy unchanged for the fifth consecutive meeting.
• The Committee reiterated its objective of achieving maximum employment and inflation at the rate of 2% over the longer run. While uncertainty around the economic outlook has diminished since earlier in the year, the Committee notes that challenges remain and continued vigilance is warranted.
• Policymakers remain highly attentive to risks on both sides of their dual mandate. The unemployment rate remains low, near 4.2%–4.5%, and labor market conditions are described as solid. However, inflation is still somewhat elevated, with the PCE price index at 2.6% and core inflation forecast at 3.1% for year-end 2025, up from earlier projections; tariff-related pressures are cited as a contributing factor.
• The Committee acknowledged that recent economic activity has expanded at a solid pace, with second-quarter annualized growth estimates near 2.4%. However, GDP growth for 2025 has been revised downward to 1.4% (from 1.7% projected in March), reflecting expectations of a slowdown in the coming quarters.
• In the revised Summary of Economic Projections, the unemployment rate is expected to average 4.5% in 2025, and headline PCE inflation is forecast at 3.0% for the year, with core PCE at 3.1%. Policymakers continue to anticipate that inflation will moderate gradually, with ongoing risks from tariffs and global conditions.
• The Committee reaffirmed its data-dependent and risk-aware approach to future policy decisions. Officials stated they are prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede progress toward the Fed’s goals.
• As previously outlined, the Committee continues the measured run-off of its securities holdings. The pace of balance sheet reduction, which slowed since April (monthly redemption cap on Treasury securities reduced from $25B to $5B, while holding agency MBS cap steady at $35B), was left unchanged this month to support orderly market functioning and financial conditions.
• The next meeting is scheduled for 16 to 17 September 2025.

Next 24 Hours Bias
Medium Bullish


Gold (XAU)

Key news events today

Core PCE price index m/m (12:30 pm GMT)

Revised UoM consumer sentiment (2:00 pm GMT)

What can we expect from Gold today?

Gold’s performance on Friday, August 29, 2025, represents the culmination of multiple bullish factors converging simultaneously. The combination of aggressive Federal Reserve dovishness, unprecedented political pressure on central bank independence, record institutional demand through ETFs and central bank purchases, and a weakening dollar has created an exceptionally favorable environment for the precious metal. The market now awaits Friday’s PCE inflation data as the key catalyst that could either reinforce current Fed rate cut expectations or introduce some uncertainty.

However, with gold maintaining its position near record highs despite various headwinds, the underlying structural demand appears robust. The path toward the $3,700-$4,000 target range over the next 12-18 months looks increasingly plausible, supported by continued central bank accumulation, persistent geopolitical uncertainties, and the potential for additional Fed policy accommodation.

Next 24 Hours Bias

Weak Bearish

The Euro (EUR)

Key news events today

German Prelim CPI m/m (7:00 am GMT)

Spanish Flash CPI y/y (7:00 am GMT)

What can we expect from EUR today?

A pivotal day for Euro developments, with major inflation data releases providing crucial insights into the Eurozone’s economic trajectory. The Euro faces mixed pressures: it has strengthened significantly in recent months but continues to experience daily volatility. Spain’s elevated inflation (2.7%) contrasts with France’s subdued price pressures (1.0%), underscoring the divergent economic conditions within the currency union. The ECB’s pause in rate cuts reflects a cautious approach amid trade uncertainties and varying inflation patterns across member states.

Political instability in France adds complexity to the economic landscape, while improving business activity suggests underlying economic resilience. The combination of heterogeneous inflation patterns, political risks, and evolving trade relationships will likely continue to influence Euro dynamics in the coming months, with today’s CPI releases potentially shaping ECB policy expectations for the remainder of 2025.

Central Bank Notes:

• The Governing Council kept the three key ECB interest rates unchanged at its July 24 meeting, maintaining the main refinancing rate at 2.15%, the marginal lending facility at 2.40%, and the deposit facility at 2.00%, following eight consecutive cuts preceding this decision.
• The decision to hold rates steady was driven by evidence that inflation is stabilizing near the Governing Council’s medium-term target of 2%. Policymakers communicated that further rate moves would be data-dependent, explicitly refraining from pre-committing to any future path amid persistent global and domestic uncertainties.
• According to the latest Eurosystem staff projections, headline inflation is expected to remain around 2.0% for 2025, with projections indicating 1.6% for 2026 and a rebound to 2.0% in 2027. Downward revisions from previous forecasts primarily reflect lower energy price assumptions and a stronger euro. Inflation excluding energy and food is seen averaging 2.4% in 2025 and 1.9% in 2026–2027, little changed from prior projections.
• Real GDP growth for the Eurozone is forecast at 0.9% in 2025, 1.1% in 2026, and 1.3% in 2027. The projections note that a strong first quarter offsets a weaker outlook for the rest of 2025. While business investment and exports are dampened by ongoing trade policy uncertainties—including recent U.S. tariff measures—rising government investment, particularly in defense and infrastructure, is expected to progressively underpin growth.
• Household spending should be supported by firm real income gains and a still-solid labour market. More favorable financing conditions are expected to help strengthen the economy’s resilience to further global shocks. Wage growth, although still elevated, continues to moderate, with profit margins partially absorbing cost pressures.
• Amid significant geopolitical and economic uncertainty, the Governing Council underscored its commitment to ensuring inflation stabilises sustainably at the 2% target. The ECB reiterated it would pursue a meeting-by-meeting, data-dependent approach to its monetary policy stance.
• Future rate decisions will be guided by the assessment of incoming economic and financial data, the outlook for inflation and underlying inflation dynamics, and the effectiveness of monetary policy transmission. The Council continues to stress that it is not pre-committed to any specific rate trajectory.
• The asset purchase programme (APP) and pandemic emergency purchase programme (PEPP) portfolios are continuing to decline in an orderly and predictable way, as the Eurosystem has ceased reinvesting principal payments from maturing securities.
• The next meeting is on 11 September 2025

Next 24 Hours Bias

Weak Bearish

The Swiss Franc (CHF)

Key news events today

No major news event

What can we expect from CHF today?

The Swiss Franc faces a complex environment characterized by medium-term strength against major currencies but significant headwinds from U.S. trade tensions and domestic deflationary pressures. The 39% U.S. tariffs represent the most immediate challenge, threatening to severely impact Switzerland’s export economy and potentially forcing the SNB into negative interest rate territory.

Key immediate risks include further tariff escalation if Swiss-U.S. negotiations fail, additional SNB rate cuts in September, and continued economic weakness. However, the Franc’s fundamental safe-haven characteristics and Switzerland’s strong economic foundations provide underlying support.

Central Bank Notes:

• The SNB eased monetary policy by lowering its key policy rate by 25 basis points, from 0.25% to 0% on 19 June 2025, marking the sixth consecutive reduction.
• Inflationary pressure has decreased further as compared to the previous quarter, decreasing from 0.3% in February to -0.1% in May, mainly attributable to lower prices in tourism and oil products.
• Compared to March, the new conditional inflation forecast is lower in the short term. In the medium term, there is hardly any change from March, putting the average annual inflation at 0.2% for 2025, 0.5% for 2026, and 0.7% for 2027.
• The global economy continued to grow at a moderate pace in the first quarter of 2025, but the global economic outlook for the coming quarters has deteriorated due to the increase in trade tensions.
• Swiss GDP growth was strong in the first quarter of 2025, but this development was largely because, as in other countries, exports to the U.S. were brought forward.
• Following the strong first quarter, growth is likely to slow again and remain rather subdued over the remainder of the year; the SNB expects GDP growth of 1% to 1.5% for 2025 as a whole, while also anticipating GDP growth of 1% to 1.5% for 2026.
• The SNB will continue to monitor the situation closely and will adjust its monetary policy if necessary to ensure inflation remains within the range consistent with price stability over the medium term.
• The next meeting is on 25 September 2025.

Next 24 Hours Bias

Medium Bearish

The Pound (GBP)

Key news events today

No major news event

What can we expect from CHF today?

The pound’s outlook remains cautiously optimistic, with the currency benefiting from relatively hawkish BoE positioning compared to other major central banks. However, the narrow policy vote splits and mixed economic data suggest that sterling’s trajectory will heavily depend on upcoming inflation data and the BoE’s September 18 policy decision.

Market participants continue to monitor the delicate balance between supporting economic growth and controlling persistent inflationary pressures. The British pound traded at $1.3502 against the US dollar on August 29, 2025, showing a slight decline of 0.04% from the previous session. Despite this minor daily dip, the pound has demonstrated remarkable strength over recent periods, rising 1.86% over the past month and gaining 2.86% over the last 12 months.

Central Bank Notes:

• The Bank of England’s Monetary Policy Committee (MPC) voted on 7 August 2025 by a majority (exact split likely 5–3–1 or similar, based on expectations) to cut the Bank Rate by 25 basis points to 4.00%. Multiple members supported the move, citing fragile economic growth and signs of disinflation, while others preferred a larger reduction, and at least one member voted to hold the rate steady due to concerns about persistent inflation.
• The Committee unanimously decided to continue reducing the stock of UK government bond purchases held for monetary policy purposes by £100 billion over the next 12 months, targeting a balance of £558 billion by October 2025. As of 7 August, the gilt stock stands at £590 billion.
• Disinflation has been substantial since 2023 owing to policy tightening and the fading of external shocks. However, an unexpected uptick in headline CPI inflation—to 3.6% in June—reflects pass-through from regulated prices and earlier energy price rises, as well as signs of sticky core inflation.
• Headline CPI inflation is now 3.6%, above the Bank’s 2% target, reflecting regulated and energy price effects. The Committee expects inflation to remain around this level through Q3 before resuming its downward trend into 2026.
• UK GDP growth remains weak. Business and consumer surveys point to lacklustre activity, and the labour market continues to loosen, with increasing evidence of slack. Wage growth has softened but remains above pre-pandemic norms.
• Pay growth and employment indicators have moderated further, and the Committee expects a significant slowing in pay settlements over the rest of 2025.
• Global uncertainty remains elevated, especially with rising energy prices and supply disruptions linked to conflict in the Middle East and renewed trade tensions. These factors prompt the MPC to remain vigilant in monitoring cost and wage shocks.
• The risks to inflation are considered two-sided. With the outlook for growth subdued and inflation persistence less clear, the Committee argues that a gradual and careful approach to further easing is warranted, with future policy decisions highly data-dependent.
• The Committee’s bias is still towards maintaining monetary policy at a restrictive stance until there is firmer evidence that inflation will return sustainably to the 2% target over the medium term. Further adjustments to policy will be decided on a meeting-by-meeting basis, with scrutiny of developments in demand, costs, and inflation expectations.
• The next meeting is on 18 September 2025.
  
  Next 24 Hours Bias
  Weak Bearish

The Canadian Dollar (CAD)

Key news events today

GDP m/m (12:30 pm GMT)

What can we expect from CAD today?

The Canadian dollar has shown remarkable resilience on August 29, 2025, despite facing multiple headwinds, including below-target inflation, mixed employment data, and ongoing trade tensions with the United States. The currency has strengthened modestly against the US dollar over the past month, benefiting from broad USD weakness following dovish signals from the Federal Reserve.

Key developments include Canada’s inflation rate falling to 1.7% in July, well below the Bank of Canada’s 2% target, which has increased expectations for rate cuts starting in September. The labor market presents a mixed picture, with June showing job gains but July recording significant losses. Trade tensions persist with elevated US tariffs, though the majority of Canadian exports remain protected under CUSMA.

Central Bank Notes:

• The Bank of Canada maintained its target for the overnight rate at 2.75%, with the Bank Rate at 3% and the deposit rate at 2.70% as of July 30, marking the third consecutive meeting with rates on hold.
• The Council cited ongoing U.S. tariff adjustments and unresolved trade negotiations as driving factors for elevated economic uncertainty. The persistence of tariffs well above early-2025 levels continues to present downside risks for growth and keeps inflation expectations elevated, supporting a cautious approach to monetary easing.
• The lack of a clear U.S. policy path, plus frequent threats of additional tariffs, led the Bank to highlight risks to Canadian exports and broader demand, amplifying uncertainty about future growth.
• Canada’s economic growth in the first quarter came in at 2.2%, slightly stronger than the original forecast, while the composition of GDP growth was largely as expected. Consumption slowed from its very strong fourth-quarter pace, but continued to grow despite a large drop in consumer confidence.
• Canadian GDP growth is expected to be near 0% in Q2 2025, closely aligned with the more optimistic scenario outlined earlier in the year. Weakness in manufacturing activity—driven by both U.S. trade disruptions and sector-specific challenges like wildfires—contributed to softer output. A partial recovery is anticipated in Q3 due to rebuilding efforts and stronger retail sales in June.
• Consumer spending slowed, especially as households front-loaded durable goods purchases ahead of tariffs. Housing activity remains subdued, with resales and construction still soft despite some government tax relief measures.
• Headline CPI inflation continued to ease, holding close to 1.7% in June, aided by declines in energy prices following the removal of the fuel charge. However, the Bank’s measures of core inflation and underlying price pressures moved up further due to higher import costs from tariffs and lingering supply disruptions.
• The Governing Council reiterated that it will carefully weigh ongoing upward inflation pressure from tariffs and cost shocks against the gradual downward pull from economic weakness. While additional rate cuts remain possible, timing and scale will depend on trade policy developments and inflation’s path.
• The next meeting is on 17 September 2025.

Next 24 Hours Bias

Medium Bearish

Oil

Key news events today

No major news event

What can we expect from Oil today?

The oil market reflects a complex interplay of bearish fundamentals and geopolitical uncertainties. Prices are declining on concerns over oversupply and weakening demand, yet geopolitical tensions ranging from the Ukraine conflict to US-India trade disputes continue to provide some support. The outlook remains challenging, with projected supply surpluses, accelerating OPEC+ production, and seasonal demand weakness weighing on prices. However, ongoing geopolitical risks, particularly surrounding Russian supply disruptions and sanctions enforcement, add uncertainty that could limit deeper price declines in the near term.

Next 24 Hours Bias
Weak Bullish