The U.S. Shopper Value Index delivered a combined however largely in-line studying for July 2025, with headline inflation holding regular at 2.7% year-on-year whereas core CPI ticked as much as 3.1%.
The info supported the thought of restricted tariff pass-through to shopper costs, offering the Fed room to give attention to labor market weak point and cementing September price lower expectations.
Let’s look at which pairs from our watchlist capitalized on this atmosphere of greenback weak point and renewed easing optimism:
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The Setup
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What We Have been Watching: U.S. CPI Report for July 2025
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The Expectation: Headline CPI to rise to 2.8% y/y from 2.7%, core CPI to extend to three.0% y/y from 2.8%, with markets looking forward to indicators of tariff-driven inflation
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Information consequence: Headline CPI held at 2.7% y/y (vs 2.8% anticipated), core CPI rose to three.1% y/y (vs 3.0% anticipated), restricted tariff influence on items costs
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Market atmosphere surrounding the occasion: Greenback underneath stress from weak jobs information and dovish Fed rhetoric, markets pricing 85%+ odds of September price lower, and tariff uncertainty
Occasion End result
The July U.S. inflation report delivered a market-friendly consequence regardless of combined headline numbers. Whereas core inflation accelerated to its highest tempo since January, the broader narrative centered on the restricted influence of tariffs on shopper costs and the Fed’s room to ease coverage.
Key factors from the U.S. CPI report:
- Tariff influence contained: Regardless of widespread considerations about commerce coverage results, companies continued absorbing most tariff prices quite than passing them to customers
- Companies inflation persistent: Airfare surged 4.0% month-on-month whereas medical care prices rose 0.7%, displaying underlying value pressures in companies
- Items deflation helped: Power costs declined 1.1% month-on-month, offering disinflationary stress to offset companies positive factors
- Housing moderation continued: Shelter prices rose simply 0.2% for a second consecutive month, displaying encouraging cooling within the largest CPI element
- Blended tariff-exposed sectors: Home equipment surprisingly fell 0.9% whereas new automobile costs remained flat regardless of vital tariff publicity
The info painted an image of an financial system the place companies had been efficiently absorbing import value pressures whereas underlying inflation dynamics remained manageable, giving the Federal Reserve justification to prioritize employment considerations over value stability within the close to time period.
Elementary Bias Triggered: Greenback weak point throughout main pairs
Markets entered the CPI launch with the greenback already underneath vital stress following the earlier week’s employment catastrophe that confirmed simply 73,000 jobs added versus 100,000 anticipated. Fed officers together with Kashkari and Daly had opened the door extensive for September cuts, with markets pricing aggressive easing expectations.
The backdrop featured Trump’s escalating tariff threats throughout a number of fronts – China going through potential greater levies because the 90-day truce deadline approached, Switzerland hit with 39% tariffs, and semiconductor/pharmaceutical sectors within the crosshairs. This created a posh atmosphere the place “dangerous information was excellent news” for price lower hopes, whereas commerce uncertainty added volatility.
Treasury Secretary Scott Bessent’s subsequent feedback advocating for a 50 basis-point September lower intensified the dovish momentum, whereas Trump’s hints about naming Powell’s successor “early” added coverage uncertainty that additional weighed on the greenback.
The chance atmosphere shifted from cautious optimism on commerce deal progress to renewed considerations about escalating world commerce tensions, making foreign money actions notably delicate to any indicators that the Fed would have room to ease aggressively.
GBP/USD: Web Bearish USD Occasion consequence + Threat-On Situation = Arguably the very best odds of a web optimistic consequence
GBP/USD 1-hour Foreign exchange Chart by TradingView
GBP/USD had been consolidating across the 1.3450 minor psychological stage forward of the CPI launch, with the pair forming a sequence of upper lows alongside a rising trendline that had held since early August.
The online dovish CPI consequence triggered a direct breakout above short-term resistance, with Cable rocketing by means of the 1.3500 deal with inside minutes of the information launch. The preliminary spike carried the pair all the way in which to 1.3580 – simply shy of the R2 goal we’d recognized – earlier than some profit-taking set in.
What made this setup notably lovely was how the elemental narrative performed out in real-time. As Fed easing odds spiked and Treasury yields collapsed, merchants instantly pivoted to the coverage divergence theme. The BOE’s comparatively hawkish stance from final week all of the sudden regarded much more engaging by comparability, with the two-year yield unfold transferring decisively in sterling’s favor.
Technical ranges held like clockwork too. The rising trendline help round 1.3420 supplied the right launching pad, whereas the break above 1.3500 probably triggered technical purchase actions, extending the rally into Thursday.
By Friday’s shut, GBP/USD had settled comfortably above 1.3550, representing a strong achieve for the week and validating the bullish bias setup when each elementary and technical possibilities aligned.
Not Eligible to maneuver past Watchlist – Bullish USD Setups and USD/CHF bearish setup
USD/CHF Web Bearish USD Occasion consequence + Threat-Off Situation
USD/CHF 1-hour Foreign exchange Chart by TradingView
This setup was invalidated because of the broad risk-on atmosphere that ensued after the US CPI report poured chilly water on any thought of the Fed holding off price cuts in September. However this was an fascinating pair to observe from a technical and momentum standpoint.
Forward of the CPI occasion, the pair hit resistance then reversed and slid to the .8024 S1 Pivot Level goal after the inflation information bolstered a dovish Fed outlook. It was there that technical consumers and revenue takers stepped in, lifting USD/CHF to the dialogue space / weekly pivot level, and chopped sideways from there.
This turned out to be a robust candidate for a purely weak USD play whatever the broad market atmosphere, because of the significance and vital response of the market to the US CPI occasion, and merchants who performed it that method, probably noticed a web optimistic consequence with comparatively average danger and commerce administration methods.
USD/JPY Lengthy: Web Bullish USD Occasion consequence + Threat-On Situation
USD/JPY 1-hour Foreign exchange Chart by TradingView
The goal occasion didn’t favor a bullish USD setup, with merchants zoning in on smooth headline CPI numbers and what they could imply for a September Fed lower.
USD/JPY, which had been leaning towards a check of vary help, as a substitute climbed and broke above the vary even earlier than the inflation information dropped. The weaker-than-expected CPI studying firmed up expectations for a September price lower, pushing Treasury yields decrease and giving USD options just like the yen a carry.
The pair slid to 146.30, breaking beneath vary help, with the transfer probably bolstered by Bessent’s remarks favoring a BOJ price hike. However Thursday’s hotter PPI print pulled again a number of the Fed price lower expectations and helped the greenback rebound, permitting USD/JPY to return to its earlier consolidation.
EUR/USD Quick: Bullish USD Occasion consequence + Threat-Off Situation
EUR/USD 1-hour Foreign exchange Chart by TradingView
The online bullish greenback state of affairs didn’t play out for this Watchlist entry, as cooler US CPI added to expectations for a September Fed price lower and despatched the buck broadly and sharply decrease.
EUR/USD didn’t attain the 1.1700 to 1.1750 quick entry zone till after the CPI launch dragged the greenback decrease. Blended inflation and GDP figures from the Euro Space additionally failed to provide the euro any clear route midweek.
The pair remains to be hovering close to that entry space, leaving merchants who took the setup with an unclear consequence within the days following the report.
The Verdict
The U.S. CPI occasion delivered precisely the greenback weak point our evaluation anticipated, with GBP/USD rising because the clear standout performer amongst our watchlist pairs. The mixture of in-line shopper value information, restricted tariff pass-through, and rising Fed-BOE coverage divergence created a really perfect atmosphere for Cable bulls.
Nonetheless, Thursday’s PPI shock served as an important reminder that inflation dynamics stay fluid within the present tariff atmosphere. Whereas fast shopper value impacts stayed contained, wholesale pressures are constructing that would complicate the Fed’s easing path forward.
For merchants who executed the GBP/USD lengthy setup with correct danger administration, the occasion supplied robust returns. Those that remained versatile sufficient to adapt to evolving information – notably round Thursday’s PPI shock – had been finest positioned to protect positive factors in what proved to be a multi-day occasion sequence quite than a single-release story.
Total, we’d price this evaluation as “extremely probably” in delivering a doubtlessly web optimistic consequence, given the robust favorable momentum transfer, and regardless of the pullback, the market closed the week notably above each the dialogue value space and the submit occasion value space.
Key Takeaways:
1. Coverage Divergence Trades Stay Highly effective
GBP/USD’s robust efficiency highlighted how financial coverage divergence can create sustained directional strikes even in unstable markets. The mixture of Fed dovishness and BOE hawkishness supplied a transparent elementary anchor that transcended short-term noise round tariffs and commerce tensions.
Motion: Deal with central financial institution coverage divergence themes when main economies are transferring in reverse instructions. These traits are inclined to have endurance past particular person information releases.
2. Tariff Fears vs. Actuality Created Buying and selling Alternatives
The disconnect between market fears about tariff-driven inflation and the precise restricted pass-through in July CPI created alternatives for these positioned for greenback weak point. Firms’ potential to soak up import prices proved extra resilient than anticipated.
Motion: Monitor the hole between coverage bulletins and their actual financial influence. Markets typically overshoot in anticipating results that will take months to materialize or could also be partially absorbed by companies.
3. Look ahead to Secondary Information That Can Reverse Narratives
Thursday’s PPI shock demonstrated how follow-up information releases can shortly problem preliminary market interpretations. Whereas CPI confirmed contained shopper inflation, PPI revealed constructing wholesale pressures that would emerge later.
Motion: Don’t assume one information level tells the entire story. Plan for situations the place subsequent releases may contradict preliminary market reactions, particularly in advanced environments like commerce wars the place results circulation by means of completely different channels.
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