IC Markets Europe Fundamental Forecast | 4 July 2025
What happened in the Asia session?
Most Asian stock markets were muted on Friday, with Hong Kong and South Korea experiencing sharp declines after U.S. President Donald Trump announced plans to begin notifying trading partners of new tariff rates later in the day. He stated that instead of engaging in prolonged negotiations with more than 170 countries, the U.S. will move ahead with flat tariffs between 20% and 30% on its own. These letters will reportedly be dispatched to groups of 10 countries at a time. To date, the U.S. has only finalised trade agreements with the U.K. and Vietnam, along with a limited arrangement with China – falling well short of Trump’s earlier promise to secure 90 deals in 90 days. Markets viewed this move as a shift back to a more aggressive, protectionist approach that could disrupt global supply chains and negatively impact export-dependent economies, particularly in Asia.
In contrast, major U.S. stock indexes climbed during Thursday’s shortened session, buoyed by a stronger-than-expected jobs report that highlighted the economy’s strength. However, the positive jobs data led investors to lower their expectations for a Federal Reserve rate cut this month. The outlook for interest rates staying higher for longer also weighed on Asian markets. Meanwhile, Wall Street futures edged down during Asian trading hours, and U.S. markets will remain closed on Friday for the Independence Day holiday.
What does it mean for the Europe & US sessions?
German factory orders increased by 0.6% in April, surprising analysts who had expected a 1.0% decline, after a downwardly revised 3.4% rise in March. The surge was largely driven by a 21.5% spike in orders for computer, electronic, and optical products, thanks to several major contracts. There was also stronger demand for aircraft, ships, trains, and fabricated metal products. On the other hand, orders dropped for electrical equipment, machinery and equipment, and pharmaceuticals. While capital goods orders went up, orders for intermediate and consumer goods decreased. However, orders are now expected to take a hit with May’s estimates pointing to a decline of 0.2%, a result that could create minor headwinds for the Euro today.
Construction activity in the U.K. has contracted since the beginning of this year but showed some signs of improvement in May, as the PMI index edged higher from 46.6 in the prior month to 47.9. Both output and new orders saw slight declines, but business optimism reached its highest level since last December. Employment, however, was a weak point, with job losses accelerating to their fastest pace since August 2020 amid soft demand and squeezed profit margins. Residential construction continued to perform the worst, while commercial activity experienced only a minor drop. Purchasing and subcontractor usage decreased, which helped shorten supply times. Although input cost inflation remained high, it eased from its March peak as suppliers passed on increased payroll expenses. Prices rose for materials such as aggregates, insulation, and timber, but fuel costs fell. Companies remain cautiously hopeful, anticipating a rebound in the housing market, more infrastructure projects, and potential interest rate cuts, though worries about the UK’s overall economic outlook persist. The forecast of 48.6 for June points to a second consecutive month of improvement, albeit at a slow pace, with optimism growing cautiously.
The Dollar Index (DXY)
Key news events today
Independence Day (Bank Holiday)
What can we expect from DXY today?
U.S. financial markets, institutions and banks will be closed for Independence Day celebrations on Friday, the 4th of July, with Americans enjoying a 3-day weekend. We can expect both trading activity and volume to taper off significantly following the end of the European trading hours, which could result in a relatively quiet day as the week comes to a close.
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% on 18 June 2025.
- The Committee seeks to achieve maximum employment and inflation at the rate of 2% over the longer run; uncertainty around the economic outlook has diminished but remains elevated.
- The Committee is attentive to the risks to both sides of its dual mandate and judges that the unemployment rate remains low, labour market conditions remain solid, but inflation is somewhat elevated.
- Although swings in net exports have affected the data, recent indicators suggest that economic activity has continued to expand at a solid pace.
- GDP growth forecasts were revised downward for 2025 (1.4% vs. 1.7% in the March projection) while PCE inflation projections have been adjusted higher for 2025, with core inflation expected to reach 3.1% (vs. 2.8% in the March projection), partly due to tariff-related pressures.
- In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook and would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of its goals.
- Beginning in April, the Committee will slow the pace of decline of its securities holdings by reducing the monthly redemption cap on Treasury securities from $25B to $5B while maintaining the monthly redemption cap on agency debt and agency mortgage-backed securities at $35B.
- The next meeting is scheduled for 29 to 30 July 2025.
Next 24 Hours Bias
Weak Bullish
Gold (XAU)
Key news events today
No major news events.
What can we expect from Gold today?
Stronger-than-expected U.S. labour market data rekindled demand for the greenback, causing gold to take a hit. Spot prices tumbled 1.4% overnight, falling sharply towards the $3,300/oz handle. Should renewed demand for the dollar remain in place, gold could slide lower, but it would still notch its first weekly gain in three weeks.
Next 24 Hours Bias
Weak Bearish
The Australian Dollar (AUD)
Key news events today
No major news events.
What can we expect from AUD today?
Following the robust U.S. non-farm payrolls, the Aussie fell 0.7% overnight before recovering some of the initial losses to steady around 0.6570. Coupled with Thursday’s goods trade surplus shrank significantly to A$2.2 billion in May, the Aussie could face near-term headwinds as we wrap up the trading week.
Central Bank Notes:
- The RBA reduced its cash rate by 25 basis points (bps), bringing it down to 3.85% on 20 May, following a pause on 1 April.
- Inflation has fallen substantially since the peak in 2022, as higher interest rates have been working to bring aggregate demand and supply closer towards balance.
- Data on inflation for the March quarter provided further evidence that inflation continues to ease. At 2.9%, annual trimmed mean inflation was below 3% for the first time since 2021 and headline inflation, at 2.4%, remained within the target band of 2 to 3%.
- While recent tariff announcements have resulted in a rebound in financial market prices, there is still considerable uncertainty about the final scope of the tariffs and policy responses in other countries, contributing to a weaker outlook for growth, employment and inflation in Australia.
- Private domestic demand appears to have been recovering, real household incomes have picked up and there has been an easing in some measures of financial stress. However, businesses in some sectors continue to report that weakness in demand makes it difficult to pass on cost increases to final prices.
- At the same time, a range of indicators suggests that labour market conditions remain tight. Employment is continuing to grow, measures of labour underutilisation are at relatively low rates and business surveys and liaison suggest that availability of labour is still a constraint for a range of employers.
- Looking through quarterly volatility, wage growth has softened over the past year or so but productivity growth has not picked up and growth in unit labour costs remains high.
- There are uncertainties about the outlook for domestic economic activity and inflation stemming from both domestic and international developments. While the central projection is for growth in household consumption to continue to increase as real incomes rise, recent data suggest that the pick-up will be a little slower than was expected three months ago.
- There is a risk that any pick-up in consumption is even slower than this, resulting in continued subdued growth in aggregate demand and a sharper deterioration in the labour market than currently expected.
- With inflation expected to remain around target, the Board therefore judged that an easing in monetary policy at this meeting was appropriate, assessing that this move would make monetary policy somewhat less restrictive.
- The Board will be attentive to the data and the evolving assessment of risks to guide its decisions. In doing so, it will pay close attention to developments in the global economy and financial markets, trends in domestic demand, and the outlook for inflation and the labour market.
- The Board is focused on its mandate to deliver price stability and full employment and will do what it considers necessary to achieve that outcome.
- The next meeting is on 8 July 2025.
Next 24 Hours Bias
Weak Bearish
The Kiwi Dollar (NZD)
Key news events today
No major news events.
What can we expect from NZD today?
The Kiwi plunged almost 1% following the release of ‘hot’ U.S. labour market data overnight. This currency pair dropped as low as 0.6030 before recovering the initial loss to settle around 0.6070. With no major domestic news catalysts lined up today, the Kiwi could edge lower should dollar demand remain in place.
Central Bank Notes:
- The Monetary Policy Committee (MPC) agreed to reduce the Official Cash Rate (OCR) by 25 basis points bringing it down to 3.25% on 28 May, marking the sixth consecutive rate cut.
- The Committee stated that annual consumer price index inflation increased to 2.5% in the first quarter of 2025 while inflation expectations across firms and households have also risen.
- However, core inflation is declining and there is spare productive capacity in the economy; these conditions are consistent with inflation returning to the mid-point of the 1 to 3% target band over the medium term.
- The New Zealand economy is recovering after a period of contraction as high commodity prices and lower interest rates are supporting overall economic activity but recent developments in the international economy are expected to reduce global economic growth.
- Both tariffs and increased policy uncertainty overseas are expected to moderate New Zealand’s economic recovery and reduce medium-term inflation pressures. However, there remains considerable uncertainty around these judgements.
- Labour market conditions remain weak while the unemployment rate is expected to peak this quarter at 5.2%.
- Inflation is within the target band, and the Committee is well placed to respond to domestic and international developments to maintain price stability over the medium term.
- The next meeting is on 9 July 2025.
Next 24 Hours Bias
Weak Bearish
The Japanese Yen (JPY)
Key news events today
No major news events.
What can we expect from JPY today?
Stronger-than-expected U.S. labour market data set a fire under USD/JPY as it rallied over 1.1% overnight before steadying around 144.90. This currency pair pulled back at the onset of Friday’s Asia session, but continued demand for the greenback could keep USD/JPY lifted on the final trading day of the week.
Central Bank Notes:
- The Policy Board of the Bank of Japan decided on 17 June, by a unanimous vote, to set the following guidelines for money market operations for the inter-meeting period:
- The Bank will encourage the uncollateralized overnight call rate to remain at around 0.5%.
- The Bank will continue its plan to reduce the amount of its monthly outright purchases of JGBs. The scheduled amount of monthly long-term government bond purchases will, in principle, be reduced by about ¥400 billion each quarter from January to March 2026, and by about ¥200 billion each quarter from April to June 2026 onward, aiming for a level of around ¥2 trillion in January to March 2027.
- Japan’s economy, while showing some weak movements in certain areas, is recovering moderately. Overseas economies, though partly exhibiting weakness due to the effects of various countries’ trade policies, are generally growing at a moderate pace. Exports and industrial production, while showing some last-minute demand due to the U.S. tariff increases, are basically moving sideways.
- On the price front, looking at the year-on-year rate of change in consumer prices (excluding fresh food), the rate is currently in the mid-3% range, reflecting continued pass-through of wage increases to sales prices, as well as the effects of past rises in import prices and recent increases in food prices such as rice. Expected inflation rates are rising moderately.
- As for consumer prices (excluding fresh food), the effects of past import price increases and recent rises in food prices such as rice, which have pushed up inflation so far, are expected to wane. During this period, the underlying rate of increase in consumer prices may stagnate somewhat due to the slowdown in growth pace.
- Looking ahead, the Japanese economy is expected to slow its growth pace, as overseas economies decelerate due to the effects of various countries’ trade policies, putting downward pressure on Japanese corporate profits, etc., although accommodative financial conditions will provide some support. Thereafter, as overseas economies return to a moderate growth path, Japan’s growth rate is expected to increase.
- As the growth rate rises, labour shortages intensify, and medium- to long-term expected inflation rates rise, inflation is expected to gradually increase. In the latter half of the projection period in the “Outlook Report,” inflation is expected to move at a level generally consistent with the “price stability target”.
- There are various risk factors, but in particular, the outlook for the development of trade policies in various countries and the resulting uncertainty regarding overseas economic and price trends is extremely high. It is necessary to closely monitor the impact on financial and foreign exchange markets, as well as on Japan’s economy and prices.
- The next meeting is scheduled for 31 July 2025.
Next 24 Hours Bias
Weak Bullish
The Euro (EUR)
Key news events today
Germany Factory Orders (6:00 am GMT)
What can we expect from EUR today?
German factory orders increased by 0.6% in April, surprising analysts who had expected a 1.0% decline, after a downwardly revised 3.4% rise in March. The surge was largely driven by a 21.5% spike in orders for computer, electronic, and optical products, thanks to several major contracts. There was also stronger demand for aircraft, ships, trains, and fabricated metal products. On the other hand, orders dropped for electrical equipment, machinery and equipment, and pharmaceuticals. While capital goods orders went up, orders for intermediate and consumer goods decreased. However, orders are now expected to take a hit with May’s estimates pointing to a decline of 0.2%, a result that could create minor headwinds for the Euro today.
Central Bank Notes:
- The Governing Council reduced the three key ECB interest rates by 25 basis points on 5 June to mark the seventh successive rate cut.
- Accordingly, the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will be decreased to 2.15%, 2.40% and 2.00% respectively.
- Inflation is currently at around the Governing Council’s 2% medium-term target. In the baseline of the new Eurosystem staff projections, headline inflation is set to average 2.0% in 2025, 1.6% in 2026 and 2.0% in 2027. The downward revisions compared with the March projections, by 0.3 percentage points for both 2025 and 2026, mainly reflect lower assumptions for energy prices and a stronger euro. Staff expect inflation excluding energy and food to average 2.4% in 2025 and 1.9% in 2026 and 2027, broadly unchanged since March.
- Staff see real GDP growth averaging 0.9% in 2025, 1.1% in 2026 and 1.3% in 2027. The unrevised growth projection for 2025 reflects a stronger-than-expected first quarter combined with weaker prospects for the remainder of the year. While the uncertainty surrounding trade policies is expected to weigh on business investment and exports, especially in the short term, rising government investment in defence and infrastructure will increasingly support growth over the medium term.
- Higher real incomes and a robust labour market will allow households to spend more. Together with more favourable financing conditions, this should make the economy more resilient to global shocks. Wage growth is still elevated but continues to moderate visibly, and profits are partially buffering its impact on inflation.
- The Governing Council is determined to ensure that inflation stabilises sustainably at its 2% medium-term target. Especially in current conditions of exceptional uncertainty, it will follow a data-dependent and meeting-by-meeting approach to determining the appropriate monetary policy stance.
- The Council’s interest rate decisions will be based on its assessment of the inflation outlook in light of the incoming economic and financial data, the dynamics of underlying inflation and the strength of monetary policy transmission, and it is not pre-committing to a particular rate path.
- The asset purchase programme (APP) and pandemic emergency purchase programme (PEPP) portfolios are declining at a measured and predictable pace, as the Eurosystem no longer reinvests the principal payments from maturing securities.
- The next meeting is on 24 July 2025.
Next 24 Hours Bias
Weak Bearish
The Swiss Franc (CHF)
Key news events today
No major news events.
What can we expect from CHF today?
After deflating in May with an annualised reading of 0.1%, the first decline since March 2021, consumer inflation in Switzerland ticked up 0.1% YoY in June. The latest print defied market expectations of a 0.1% drop as prices increased for sectors such as restaurants and hotels, clothing and footwear, while housing and energy costs remained steady. Meanwhile, prices for transport and recreation and culture declined at the same pace as in the previous month, falling at an annual rate of 3.7% and 0.1% respectively. Coupled with relatively robust U.S. non-farm payrolls, USD/CHF rallied nearly 1% overnight before settling around 0.7950. This currency pair will likely edge climb higher as the day progresses.
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 Bullish
The Pound (GBP)
Key news events today
S&P Global Construction PMI (8:30 am GMT)
What can we expect from GBP today?
Construction activity in the U.K. has contracted since the beginning of this year but showed some signs of improvement in May, as the PMI index edged higher from 46.6 in the prior month to 47.9. Both output and new orders saw slight declines, but business optimism reached its highest level since last December. Employment, however, was a weak point, with job losses accelerating to their fastest pace since August 2020 amid soft demand and squeezed profit margins. Residential construction continued to perform the worst, while commercial activity experienced only a minor drop. Purchasing and subcontractor usage decreased, which helped shorten supply times. Although input cost inflation remained high, it eased from its March peak as suppliers passed on increased payroll expenses. Prices rose for materials such as aggregates, insulation, and timber, but fuel costs fell. Companies remain cautiously hopeful, anticipating a rebound in the housing market, more infrastructure projects, and potential interest rate cuts, though worries about the UK’s overall economic outlook persist. The forecast of 48.6 for June points to a second consecutive month of improvement, albeit at a slow pace, with optimism growing cautiously.
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 events.
What can we expect from CAD today?
The combination of broad dollar weakness and elevated oil prices continues to heap overhead pressures on USD/CAD as it fell to an overnight low of 1.3555. This currency pair climbed higher at the beginning of Friday’s Asia session, floating around 1.3580 but the downward trajectory will likely resume as the day progresses.
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% on 4th June – marking the second consecutive meeting where rates were kept on hold.
- The Governing Council noted that the ongoing increase and decrease of various U.S. tariffs, coupled with highly uncertain outcomes of bilateral trade negotiations and tariff rates remaining well above their levels at the beginning of 2025, placed downside risks on growth and lifted inflation expectations, warranting caution regarding the continuation of monetary easing.
- The higher uncertainty stemmed from the absence of a clear tariff path by the U.S. and persistent threats of new trade actions, which prompted the BoC Governing Council to highlight risks such as the extent to which higher US tariffs reduce demand for Canadian exports.
- 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.
- Housing activity was down, driven by a sharp contraction in resales, while government spending also declined. The economy is expected to be considerably weaker in the second quarter, with the strength in exports and inventories reversing and final domestic demand remaining subdued.
- The labour market has weakened, particularly in trade-intensive sectors, and unemployment has risen to 6.9% while CPI inflation eased to 1.7% in April, as the elimination of the federal consumer carbon tax reduced inflation by 0.6%.
- The Bank’s preferred measures of core inflation, as well as other measures of underlying inflation, moved up, while recent surveys indicate that households continue to expect that tariffs will raise prices and many businesses say they intend to pass on the costs of higher tariffs.
- The Governing Council will continue to assess the timing and strength of both the downward pressures on inflation from a weaker economy and the upward pressures on inflation from higher costs while proceeding carefully, with particular attention to the risks and uncertainties facing the Canadian economy.
- The Governing Council will focus on ensuring that Canadians continue to have confidence in price stability through this period of global upheaval by supporting economic growth while ensuring that inflation remains well-controlled.
- The next meeting is on 30 July 2025.
Next 24 Hours Bias
Weak Bearish
Oil
Key news events today
No major news events.
What can we expect from Oil today?
Oil prices edged down on Thursday as investors grew concerned that U.S. tariffs might dampen energy demand just as major oil producers are expected to increase supply. U.S. President Donald Trump’s 90-day delay on higher tariffs expires on July 9, and key trading partners like the European Union and Japan have yet to finalise trade agreements. This uncertainty has left oil traders wary about the potential impact on the economy and fuel consumption.
Adding to the downward pressure, OPEC+ is anticipated to approve a production hike of 411,000 barrels per day at its upcoming policy meeting. Meanwhile, a private survey revealed that China’s services sector – crucial for the world’s largest oil importer – grew in June at its slowest rate in nine months, with weaker demand and fewer new export orders. In the United States, an unexpected increase in crude oil inventories further underscored worries about demand in the world’s largest oil consumer. WTI oil futures hovered around $67 per barrel in early trade on Friday.
Next 24 Hours Bias
Weak Bullish
