Weekly Outlook ·
Markets watch US inflation data this week as the Fed holds rates elevated despite a cooling economy and badly missed jobs numbers.
Risk appetite is creeping higher as equity markets rally and volatility eases, driven by fading expectations for further rate hikes across major economies. The macro picture is mixed: growth is slowing in the US while inflation cools, but central banks in Japan, Australia, and New Zealand remain hawkish as price pressures persist. This week, US inflation prints and the RBA rate decision will test whether the current risk-on tone can hold.
What was driving markets
Fed on hold but divided
The Fed holds rates elevated even as growth slows sharply and hiring misses badly, with three members still pushing for hikes despite cooling inflation. Monthly core price growth has decelerated, but sticky wage growth and internal hawkish dissent keep cuts off the table for now. This supports the dollar in the near term, though softer data is beginning to weigh on sentiment.
Hawkish stance persists in the Pacific
Japan paused after three consecutive hikes but one member dissented for more tightening, while the RBA holds at elevated levels and warns further hikes remain on the table. New Zealand recently raised rates as inflation reaccelerated and signaled another move is likely. All three currencies benefit from central banks keeping policy tight while others stand pat, with the yen, Aussie, and kiwi finding support from persistent inflation and hawkish rhetoric.
Europe surprises with strength
The euro area economy grew at double the forecast pace while inflation remains sticky above target, keeping the ECB firmly on hold with no cuts in sight. Bond yields reflect no near term easing, and the combination of stronger growth and stubborn core inflation supports the euro. The pound faces a different picture: inflation is cooling and the Bank of England majority leans dovish despite tight labour markets, weighing on sterling.
Commodity currencies diverge on policy
The Canadian dollar lags despite recovering growth and strong jobs because the Bank of Canada signals no urgency to move from its patient hold. The Aussie and kiwi benefit from more aggressive central bank stances, with the RBA ready to hike again if needed and the RBNZ actively tightening. The loonie underperforms its commodity peers as policy momentum tilts hawkish elsewhere.
What was on the radar that week
- RBA rate decision. Australia's central bank meets with markets watching for any shift in the hawkish hold stance or fresh hike signals.
- US inflation release. Monthly and annual CPI prints will test whether the sharp cooling in core prices continues or stabilizes.
- UK GDP preliminary data. Quarterly and monthly growth figures will clarify whether the modest expansion is holding or fading further.
- US retail sales. Consumer spending data late in the week will confirm whether the economy is truly losing momentum or finding support.
The bottom line
Watch US inflation data closely this week. If price growth continues to cool, pressure will build on the Fed's elevated stance and support risk appetite further. Until then, hawkish central banks in the Pacific and solid European data keep their currencies supported against the dollar and pound.
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It went out to subscribers on 9 August 2026 and was published here once the following week's outlook had been sent. The market has moved since. For the live picture, see the platform.
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