IC Markets Europe Fundamental Forecast | 5 August 2025

IC Markets Europe Fundamental Forecast | 5 August 2025

What happened in the Asia session?

The Asia session on August 5, 2025, was shaped by fresh U.S. tariff threats, trade and policy uncertainty, cautious central bank guidance, and uneven macroeconomic data. The most-affected financial instruments were export equities, Asian currencies, and industrial commodities, as traders remained on guard for further volatility and event risk through the global trading day.

The Bank of Japan’s release of July meeting minutes reaffirmed a cautious monetary policy stance but noted rising inflation pressures, reinforcing market expectations of eventual BOJ tightening. Currencies showed varied moves: the Japanese yen strengthened in early trade, while the Indian rupee and South Korean won weakened amid trade and geopolitical uncertainties.

What does it mean for the Europe & US sessions?

As European and U.S. sessions begin, traders should monitor escalating global tariff developments, the fallout from mixed trade deal outcomes, investor sentiment surveys, and crucial service sector and trade data. Markets are opening on a cautious but steadier note after last week’s rout, yet headline risk and data surprises can drive rapid repricing across currencies, equities, commodities, and bonds. The U.S. dollar has consolidated after recording its best weekly gain since 2022, spurred by risk aversion and hawkish Fed signals. However, the euro and other major currencies have stabilized after last week’s steep losses, reflecting positioning ahead of major macro releases.

The Dollar Index (DXY)

Key news events today

ISM service PMI (2:00 pm GMT)

What can we expect from DXY today?

The US dollar is currently consolidating after last week’s large swings, with markets focused on Fed rate cut expectations, credibility concerns, and global risk appetite. While some technical stabilization is evident, fundamental risks remain for further downside if US economic data continues to falter or policy uncertainty escalates. The US Dollar Index (DXY) showed modest gains, trading near 98.8 after a rollercoaster prior week marked by volatile swings. After suffering heavy losses following disappointing jobs data and political turmoil, the dollar finds some stability amid growing expectations of Federal Reserve rate cuts . Markets currently price in three 25-basis-point rate cuts by year-end, with a greater than 90% probability of a cut at the September meeting.

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 the July 29–30, 2025, meeting, 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
Weak Bearish

Gold (XAU)

Key news events today

ISM service PMI (2:00 pm GMT)

What can we expect from Gold today?

Gold continues to attract strong investment and safe-haven flows as traders price in high odds of U.S. rate cuts, inflation stays elevated, and political/geopolitical risks persist. The price trend is stable to mildly bullish, with the outlook tethered to U.S. macro signals and global risk sentiment. Gold prices modestly advanced on August 5, trading near $3,370 per ounce amid growing optimism over an expected Federal Reserve rate cut. The probability of a September Fed rate cut remains high after recent weak U.S. labor market data and dovish commentary from Fed officials.

Next 24 Hours Bias

Weak Bullish

The Euro (EUR)

Key news events today

No major news event

What can we expect from EUR today?

The euro is consolidating after a relief rally versus the dollar, holding above key support levels but showing limited momentum due to persistent global trade and growth uncertainty. Relative ECB/Fed rate expectations, Eurozone confidence data, and headlines on tariffs and U.S. macro releases remain the primary drivers for short-term direction. The EUR/USD pair faces key support at 1.1530 and resistance near 1.1600; a breakout above 1.1600 could trigger further gains, but risk remains for downside moves if confidence slips or if U.S. data surprises to the upside.

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 moves on rates 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 Bullish

The Swiss Franc (CHF)

Key news events today

No major news event

What can we expect from CHF today?

The Swiss franc is under pressure due to aggressive new U.S. tariffs and heightened global trade tensions. The SNB is grappling with FX-induced losses, stubbornly low inflation, and a fragile outlook for Swiss exporters. Both currency and equities remain vulnerable, while monetary policy is expected to remain highly accommodative as policymakers and markets await clarity on trade negotiations and the broader global outlook.

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

Weak Bearish

The Pound (GBP)

Key news events today

No major news event

What can we expect from GBP today?

The pound is trading with a weak-to-neutral undertone, facing headwinds from expected BoE policy easing, fragile U.K. economic fundamentals, and ongoing external volatility. Key support levels bear watching, while uncertainty around central bank actions and global risks keeps GBP traders on alert throughout today’s session.GBP/USD traded around 1.327, down slightly (0.16%) in early Tuesday trading after a modest recovery late last week. The pair remains below July highs and continues to underperform every month.

Central Bank Notes:

• The Bank of England’s Monetary Policy Committee (MPC) voted by a majority of 6 to 3 to maintain the Bank Rate at 4.25% on 19 June 2025, with three members preferring to reduce the Bank Rate by 25 basis points.
• The MPC also voted unanimously to reduce the stock of UK government bond purchases held for monetary policy purposes and financed by the issuance of central bank reserves, by £100 billion over the next 12 months to a total of £558 billion, starting in October 2024. On 19 June 2025, the stock of UK government bonds held for monetary policy purposes was £590 billion.
• There has been substantial disinflation over the past two years, as previous external shocks have receded, and as the restrictive stance of monetary policy has curbed second-round effects and stabilised longer-term inflation expectations.
• Twelve-month CPI inflation increased to 3.4% in May from 2.6% in March, in line with expectations in the May Monetary Policy Report. The rise was largely due to a range of regulated prices and previous increases in energy prices.
• Underlying UK GDP growth appears to have remained weak, and the labour market has continued to loosen, leading to clearer signs that a margin of slack has opened up over time.
• Measures of pay growth have continued to moderate and, as in May, the Committee expects a significant slowing over the rest of the year.
• Global uncertainty remains elevated while energy prices have risen owing to an escalation of the conflict in the Middle East, prompting the Committee to remain sensitive to heightened unpredictability in the economic and geopolitical environment.
• There remain two-sided risks to inflation. Given the outlook and continued disinflation, a gradual and careful approach to the further withdrawal of monetary policy restraint remains appropriate and the Committee will continue to monitor closely the risks of inflation persistence and what the evidence may reveal about the balance between aggregate supply and demand in the economy.
• Monetary policy will need to continue to remain restrictive for sufficiently long until the risks to inflation returning sustainably to the 2% target in the medium term have dissipated further and the Committee will decide the appropriate degree of monetary policy restrictiveness at each meeting.
• The next meeting is on 7 August 2025.

Next 24 Hours Bias

Weak Bearish

The Canadian Dollar (CAD)

Key news events today

No major news event

What can we expect from CAD today?

The Canadian Dollar remains steady against the USD, showing resilience even as global trade risk, U.S. recession worries, and local economic data all continue to drive near-term volatility. Markets remain focused on domestic employment data and global policy headlines as key catalysts for the next move. The USD/CAD exchange rate fluctuated around 1.378, recovering modestly after recent declines. This range-bound movement reflects continuing market uncertainty, with the USD losing its recent dominance and CAD stabilizing off two-month lows.

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 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

Weak Bearish

Oil

Key news events today

API Crude Oil Stock (8:30 pm GMT)

What can we expect from Oil today?

Oil prices edged lower in volatile trade, influenced by renewed concerns about oversupply following OPEC+’s decision to increase production by 547,000 barrels per day in September. This marks the fourth straight session of declines for both Brent and WTI, which fell around 1.5% and reached their lowest levels in a week. The U.S. is threatening additional tariffs on India for continuing to purchase Russian crude. This potential action adds a further layer of uncertainty to global oil flows and could disrupt refined product trade routes.

Next 24 Hours Bias

Weak Bearish