IC Markets Europe Fundamental Forecast | 8 July 2025
What happened in the Asia session?
Following a pause in April, the Reserve Bank of Australia (RBA) unexpectedly maintained their Cash Rate at 3.85% once again. Markets had anticipated a reduction of 25 basis points (bps) at today’s monetary policy announcement, but investors and traders alike were caught off guard. The move was passed by a majority vote, with six members in favour and three against. Policymakers indicated that they would wait for more data to confirm that inflation is on track to sustainably return to the target of 2.5%. They also emphasised that monetary policy remains well-positioned to respond decisively should global developments significantly impact domestic activity or inflation. The Aussie surged beyond 0.6550 in the immediate aftermath of this announcement, and combined with renewed weakness in the greenback, this currency pair will likely remain elevated today.
What does it mean for the Europe & US sessions?
Two of Europe’s largest economies will be releasing their latest balance of trade figures before the start of the European trading hours. After narrowing sharply to €14.6 billion in April, well below market forecasts of €20.2 billion, Germany is now expected to register a surplus of €18.1 billion. Meanwhile, France’s trade deficit widened to €8 billion in April, exceeding market expectations of a €6 billion gap. However, it is now anticipated that this deficit will narrow to -€7.7 billion in May, potentially highlighting an improvement in exports. Should we see a robust set of trade figures for these two European powerhouse countries, the Euro could enjoy strong tailwinds in the latter half of the day.
Canada’s Ivey PMI contracted for the second successive month in May with a reading of 48.9, rising marginally from 47.9 in the prior month. The only bright spot was employment, where the index rose to 51.1 from 48.0, pointing to an improvement in workforce levels. Although June’s forecast of 49.1 points to another month of improvement, this sector continues to highlight deterioration, a result that could weigh on the Loonie in the near term.
The Dollar Index (DXY)
Key news events today
NFIB Small Business Index (10:00 am GMT)
What can we expect from DXY today?
The National Federation of Independent Business (NFIB) will release its survey on U.S. small businesses, where this index is anticipated to remain somewhat unchanged in June. It rose from 95.8 in April to 98.8 in May, easily exceeding the forecast of 95.9 while marking the highest print in three months. “Although optimism recovered slightly in May, uncertainty is still high among small business owners. While the economy will continue to stumble along until the major sources of uncertainty are resolved, owners reported more positive expectations on business conditions and sales growth“, NFIB Chief Economist William Dunkelberg said. Coupled with U.S. President Donald Trump’s announcement that countries in the BRICS group would be subject to higher trade tariffs over the weekend, the economic outlook for global trade and small businesses continues to face a high degree of challenges and uncertainties.
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?
Despite the latest series of trade tariffs announced by U.S. President Donald Trump, demand for safe-haven assets such as gold was muted. Spot prices fell to an overnight low of $3,296.50/oz before settling around $3,340/oz in early Asia trade on Tuesday as geopolitical risks continue to ease.
Next 24 Hours Bias
Medium Bearish
The Australian Dollar (AUD)
Key news events today
RBA Cash Rate Decision (4:30 am GMT)
RBA Press Conference (5:30 am GMT)
What can we expect from AUD today?
Following a pause in April, the Reserve Bank of Australia (RBA) unexpectedly maintained their Cash Rate at 3.85% once again. Markets had anticipated a reduction of 25 basis points (bps) at today’s monetary policy announcement, but investors and traders alike were caught off guard. The move was passed by a majority vote, with six members in favour and three against. Policymakers indicated that they would wait for more data to confirm that inflation is on track to sustainably return to the target of 2.5%. They also emphasised that monetary policy remains well-positioned to respond decisively should global developments significantly impact domestic activity or inflation. The Aussie surged beyond 0.6550 in the immediate aftermath of this announcement, and combined with renewed weakness in the greenback, this currency pair will likely remain elevated today.
Central Bank Notes:
- The RBA maintained its cash rate at 3.85% on 8 July, voted by a majority of 6 to 3, to mark a second consecutive hold on rates.
- 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.
- In the March quarter, headline inflation, which has partly been affected by temporary cost-of-living relief, was at the midpoint of the target range while trimmed mean inflation was at 2.9%.
- The baseline forecast in May was for underlying inflation to continue to moderate to around the midpoint of the 2–3% range, while recent monthly CPI Indicator data suggest that June quarter inflation is likely to be broadly in line with the forecast, they were slightly stronger than expected.
- While the final scope of U.S. tariffs and policy responses in other countries remains unknown, financial market prices have rebounded with an expectation that the most extreme outcomes are likely to be avoided.
- Trade policy developments are nevertheless still expected to have an adverse effect on global economic activity, and there remains a risk that households and firms delay expenditure pending greater clarity on the outlook.
- Setting aside overseas developments, private domestic demand appears to have been recovering gradually, 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, various indicators suggest that labour market conditions remain tight while 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, wages growth has softened from its peak 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, with the March quarter national accounts confirming that domestic demand has been picking up over the past six months.
- There are also uncertainties regarding the lags in the effect of recent monetary policy easing and how firms’ pricing decisions and wages will respond to the balance between demand and supply for goods and services, tight conditions in the labour market and continued weak productivity outcomes.
- The Board judged that it could wait for a little more information to confirm that inflation remains on track to reach 2.5% on a sustainable basis and noted that monetary policy is well placed to respond decisively to international developments if they were to have material implications for domestic activity and inflation.
- The Board will be attentive to the data and the evolving assessment of risks to guide its decisions and 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 12 August 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?
After breaking under the threshold of 0.6000 on Monday, the Kiwi managed to find its footing due to the overnight sell-off in the greenback. This currency pair found a temporary floor around 0.5990 during Tuesday’s Asian trading hours before edging higher to climb above the threshold once more.
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?
Despite a renewed fragility in the U.S. dollar due to the latest tariff announcements by President Donald Trump, the yen faces structural weaknesses, such as Japan’s export resilience and monetary policy. Despite the yen’s status as a safe-haven asset, these structural pressures outweighed any flight-to-safety demand, leading to a depreciation against the dollar.
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 Trade Balance (6:00 am GMT)
France Trade Balance (6:45 am GMT)
What can we expect from EUR today?
Two of Europe’s largest economies will be releasing their latest balance of trade figures before the start of the European trading hours. After narrowing sharply to €14.6 billion in April, well below market forecasts of €20.2 billion, Germany is now expected to register a surplus of €18.1 billion. Meanwhile, France’s trade deficit widened to €8 billion in April, exceeding market expectations of a €6 billion gap. However, it is now anticipated that this deficit will narrow to -€7.7 billion in May, potentially highlighting an improvement in exports. Should we see a robust set of trade figures for these two European powerhouse countries, the Euro could enjoy strong tailwinds in the latter half of the day.
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?
Renewed demand for the greenback saw USD/CHF make an overnight high of 0.7991, but the upside could now be limited, due to a new series of trade tariffs announced by U.S. President Donald Trump on Monday. This currency pair was floating around 0.7970 as Asian markets came online, with headwinds possibly growing stronger.
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
No major news events.
What can we expect from GBP today?
The overnight sell-off in the greenback provided support for Cable as it stabilised around the handle of 1.3600. This currency pair edged higher toward 1.3650 at the beginning of Tuesday’s Asia session, as dollar weakness resumed following U.S. President Donald Trump’s announcement of new trade tariff threats.
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
Ivey PMI (2:00 pm GMT)
What can we expect from CAD today?
Canada’s Ivey PMI contracted for the second successive month in May with a reading of 48.9, rising marginally from 47.9 in the prior month. The only bright spot was employment, where the index rose to 51.1 from 48.0, pointing to an improvement in workforce levels. Although June’s forecast of 49.1 points to another month of improvement, this sector continues to highlight deterioration, a result that could weigh on the Loonie in the near term.
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 Bullish
Oil
Key news events today
API Crude Oil Stock (8:30 pm GMT)
What can we expect from Oil today?
Crude oil prices are rising in Asian trading on Tuesday, driven by robust regional demand, particularly in Asia, which accounted for the highest seaborne crude imports since January 2023, with June arrivals at 28.7 million barrels per day, OPEC+ output hikes, and Saudi Arabia’s confidence in the market. However, looming U.S. tariff deadlines and ongoing geopolitical risks are likely to keep volatility elevated in the near term.
Moving over to U.S. inventories, the API stockpiles had drawn down strongly since the end of May, coinciding with the start of the peak Northern Hemisphere summer driving season, reflecting higher demand for crude. However, last week’s report showed these stockpiles registering a surprise build of 0.7 million barrels. Should inventories continue to grow for the second consecutive week, it could create near-term headwinds for this commodity.
Next 24 Hours Bias
Medium Bearish
