IC Markets Europe Fundamental Forecast | 4 August 2025

IC Markets Europe Fundamental Forecast | 4 August 2025

What happened in the Asia session?

Asian markets opened the week fluctuating between losses and gains as traders assessed new U.S. tariffs, OPEC+ production moves, weak U.S. labor data, and upcoming local macro releases. Increased volatility is expected across equity indices, major Asian currencies, and oil-related instruments as investors react to both region-specific policy signals and global macro headlines. Traders weighed the likely response of policymakers, with Japan considering fiscal support and the Reserve Bank of India’s meeting in focus.

U.S. Federal Reserve rate cut expectations have increased after weak U.S. payrolls, influencing global and Asian rate-sensitive assets. Regional market outlook remains defensive and headline-driven, with sensitivity to further trade announcements and key data (China PMI, CPI, Bank of Japan commentary) expected to dictate the tone over the coming hours.

What does it mean for the Europe & US sessions?

The European and U.S. sessions are starting on a cautious but slightly positive note, with traders monitoring geopolitical/trade news, U.S. economic data integrity, and crucial inflation and sentiment readings. Heightened volatility across equities, rates, FX, and commodity markets is expected to persist as the tug-of-war between policy developments and macro trends continues. Markets remain headline-driven, focused on tariffs, policy signals, inflation data, and any shifts in the trajectory of global economic growth or central bank decision-making.

The Dollar Index (DXY)

Key news events today

No major news event

What can we expect from DXY today?

The dollar started the week on a defensive footing, pressured by soft employment data, swelling Fed rate cut bets, and political headlines, with markets remaining highly sensitive to any news that might shift the U.S. macro outlook or global policy landscape. The U.S. Dollar Index (DXY) fell as low as 98.76, down nearly 0.4% from the previous session and more than 1% from Friday’s close. Across the past month, the dollar is up about 1.3%, but still down nearly 4% from a year ago.

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

Strong Bullish

Gold (XAU)

Key news events today

No major news event

What can we expect from Gold today?

Gold started Monday just below recent highs as traders digested rate cut expectations, trade-policy turbulence, and resilient retail demand. Volatility remains elevated, and flows into both ETFs and physical gold are strong as economic and geopolitical worries continue to support the yellow metal. Gold traded at approximately $3,360 per troy ounce early Monday, edging down 0.07% on the day following a strong rally late last week. Over the past month, gold is up 0.7%, and it remains nearly 40% higher than a year ago, having hit record highs earlier in 2025.

Next 24 Hours Bias

Weak Bearish

The Euro (EUR)

Key news events today

No major news event

What can we expect from EUR today?

The euro starts the week on a cautious footing, softening modestly against the dollar as markets digest lackluster economic growth, ongoing tariff/trade risks, and technical resistance levels. European stocks look set for a mild rebound, but headline risk and data releases through the week will determine whether the euro can stabilize and recover more meaningful momentum. Eurostat’s flash estimate shows euro area Q2 GDP rose just 0.1% quarter-on-quarter (down sharply from Q1’s 0.6%). The annual growth pace slowed to 1.4%, with Spain and Portugal performing best, while Germany and Italy saw mild declines.

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

Strong Bearish

The Swiss Franc (CHF)

Key news events today

CPI m/m (6:30 am GMT)

What can we expect from CHF today?

The Swiss Franc and broader Swiss markets face a high-stakes week driven by the new 39% U.S. tariff, rising recession threats, and deflationary pressure after July’s disappointing CPI. The SNB is under pressure to act, while government efforts focus on averting a worst-case trade scenario. Volatility in CHF, the SMI, and bonds will remain high as traders assess both macro data and diplomatic developments.

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?

GBP traders face an eventful week, with the pound holding steady against the dollar but vulnerable to fresh volatility due to central bank policy, trade developments, and sector-specific news. Watch for policy signals from the Bank of England and any escalation or relief in global trade tensions as the primary catalysts shaping GBP’s short-term fate. The pound remained relatively stable against the euro and other G10 currencies, with marginal moves versus the Swiss franc, yen, and Canadian dollar through early Monday.Medium-Term Outlook: The GBP is expected to remain volatile, with technical and sentiment-driven corrections possible. The macro backdrop featuring sluggish growth, high core inflation, and the forthcoming BoE rate decision will be crucial in determining direction over the week.

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

Medium Bearish

The Canadian Dollar (CAD)

Key news events today

No major news event

What can we expect from CAD today?

The Canadian Dollar is recovering from recent weakness caused by tariff concerns and tepid growth data. It remains volatile as traders respond to high-stakes trade policy headlines, central bank stances, and both domestic and U.S. economic surprises. The Canadian Dollar (CAD) recovered from recent lows, with the USD/CAD exchange rate falling to 1.3773 as of August 4, 2025—down 0.09% from the previous session. Despite this bounce, CAD remains about 0.79% weaker against the USD over the past month but stands 0.23% stronger on a year-over-year basis.

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

Strong Bearish

Oil

Key news events today

No major news event

What can we expect from Oil today?

The oil market enters the week with increased production commitments from OPEC+ but faces ongoing uncertainties from trade policy changes and geopolitical tensions that could affect both supply and demand dynamics.OPEC+ Confirms September Output Hike: The Organization of the Petroleum Exporting Countries and its allies agreed on Sunday to increase oil production by 547,000 barrels per day (bpd) starting September 2025. This marks the latest in a series of monthly production increases as the group continues unwinding voluntary cuts implemented during the pandemic.

Next 24 Hours Bias

Medium Bullish