- Trump on FOX Business: Iran wants to meet. They want to make a deal. But plans for more military operations.
- US military strikes Iran (again)
- Crude oil futures settled at $79.60 up $0.26 or 0.33%
- Fed Beige Book: Growth Continues, Uncertainty Lingers
- Iran's Qalibaf: We must always be ready to fight and stand to the end to safeguard our national security and interests
- Fed's Cook: It is prudent to wait a bit longer for inflation to slow, but is prepared to act
- White House reportedly weighing an additional extension of Jones Act waivers as renewed Iran conflict stirs price fears
- BOC Press conference: Q2 is looking pretty solid The Economy is looking like it is in expansion
- Weekly EIA crude oil inventory -1.692 million vs -2.594 million estimate
- Fed Chair Warsh in the Senate testifies in front of the Senate Banking Committee.
- Bank of Canada rate decision 2.25% vs 2.25% expected
- The full statement from the Bank of Canada rate decision
- Fed's Williams: It is imperative that we restore inflation to 2% goal on a sustained basis
- US Empire Manufacturing for July 15.6 vs 5.70 last month. The estimate was 8.80.
- May Canada manufacturing sales +1.3% vs +1.1% expected
- US June PPI 5.5% vs 6.2% expected
- Kickstart the North American session: The USD is little changed versus the major currencies.
- investingLive European markets wrap: Oil prices hold higher, yields push up again after US CPI breather
The U.S. dollar remained under pressure following another softer-than-expected U.S. inflation report, with weaker PPI data reinforcing expectations that price pressures continue to cool and increasing the likelihood of additional Fed rate cuts by year-end. Treasury yields moved lower, dragging the greenback broadly lower across the FX market.
Looking at the US yield curve:
- 2 year yield 4.140%, -5.2 basis points.
- 5 year yield 4.265%, -5.7 basis points
- 10 year yield 4.551%, -3.7 basis points
- 30 year yield 5.083%, -1.1 basis points
In the forex, the GBPUSDÂ was the standout performer, climbing more than 1% against the dollar to a high of 1.3557 before coming off into the close to 1.3534 currently. The strongest move among the major currencies. Sterling gained not only from broad USD weakness but also from growing speculation that the UK's next Prime Minister will appoint Home Secretary Shabana Mahmood as Chancellor. Markets are interpreting the expected appointment as fiscally responsible, boosting confidence in UK assets and helping propel GBP/USD to fresh highs.
Elsewhere, the EURUSD also advanced as lower U.S. yields supported the pair, while the New Zealand dollar and Australian dollar posted solid gains.
Fed's Williams spoke (NY Fed Pres) and struck a moderately hawkish, but cautiously optimistic tone. He stressed that restoring inflation to the Fed's 2% target remains the central priority, saying inflation is still too high at around 4% and that current monetary policy is well positioned to continue bringing price pressures lower. He also emphasized there is no consideration of changing the Fed's 2% inflation target and said the central bank remains committed to delivering both price stability and maximum employment.
Williams said there are encouraging signs that inflation has peaked, with the latest CPI report providing another indication that inflation is moving in the right direction. He expects inflation to slow to about 3.25% by year-end before gradually returning to 2% in 2028. He described the economy and labor market as resilient and stable, forecasting trend-like GDP growth and a gradual decline in unemployment. While acknowledging risks from Middle East supply disruptions and uncertainty surrounding AI-driven investment, he said the U.S. economy has so far absorbed those challenges well.
Williams avoided providing any guidance on the path of interest rates, saying he has no particular view on where policy is headed and that the Fed has moved away from forward guidance. He reiterated that rates should eventually move lower once inflation is sustainably back at 2%, but not before. Overall, his comments reinforced a patient, data-dependent approach, keeping the message slightly hawkish despite growing confidence that inflation is moving in the right direction.
Fed Chair Kevin Warsh largely repeated the themes from his House testimony, maintaining a mildly hawkish stance. He said recent inflation data is an imperfect gauge of underlying price pressures and stressed that inflation remains the weaker side of the Fed's dual mandate, even as the labor market is in good shape. Warsh said the Fed is prepared to adjust both interest rates and its balance sheet if needed to keep inflation under control and reiterated that the balance sheet should ultimately be as small as practical.
Warsh also highlighted the surge in AI investment as a major driver of business spending and economic growth. While AI may cause one-time price increases and some job displacement, he believes it will ultimately create jobs and boost productivity. He added that he would not discuss conversations with President Trump and said the Fed's task forces are expected to begin reporting recommendations as early as September. Overall, the testimony offered little that was new and was consistent with his prior comments.
The Canadian dollar strengthened modestly after the Bank of Canada left its overnight rate unchanged at 2.25%, as widely expected, while signaling increased confidence that the economy is beginning to recover after a weak start to the year. Policymakers said growth appears to have resumed in the second quarter at an annualized pace of roughly 2.5%, with the expansion broadening beyond a few sectors. While labor market conditions remain soft and housing activity has been subdued, the Bank noted signs of stabilization in housing and expects business investment to improve as companies adapt to ongoing uncertainty surrounding the USMCA trade framework.
On inflation, the Bank acknowledged that headline price pressures have risen in the near term, largely due to higher gasoline prices, refinery margins, and the weaker Canadian dollar. However, it emphasized that underlying inflation remains close to the 2% target and is expected to ease gradually over time. The Governing Council reiterated that it will continue to assess incoming economic data and stands ready to adjust monetary policy if needed. Notably, the Bank removed earlier language emphasizing that it would look through the inflationary effects of geopolitical tensions, instead adopting a more balanced tone that suggests policymakers are comfortable remaining on hold while monitoring how growth and inflation evolve.
The updated Monetary Policy Report (MPR) reflected this more measured outlook. The Bank downgraded its 2026 growth forecast after the economy stalled in the first quarter but lifted its projections for 2027 and 2028, indicating confidence that the recovery has been delayed rather than derailed. Overall, the statement points to a central bank that sees improving economic momentum but is in no rush to either tighten or ease policy further, with future decisions remaining firmly data dependent.
In the press conference, Bank of Canada Governor Tiff Macklem struck a cautiously optimistic tone, saying the economy appears to have regained momentum in the second quarter, with growth looking "pretty solid." While he acknowledged there are still questions about how durable the recent improvement will prove to be, he added that the Bank believes the recovery is sustainable. Macklem emphasized that policymakers will continue to evaluate incoming data before drawing firm conclusions, reinforcing that future policy decisions will be made one meeting at a time rather than following a predetermined path.
On inflation, Macklem reiterated that the Bank remains vigilant. He warned that if oil prices were to rise sharply again and begin feeding more broadly into inflation, the Bank would likely need to respond with consecutive rate hikes to keep inflation under control. At the same time, he downplayed the recent weakness in the Canadian dollar, saying it has not been a major factor in the Bank's policy decisions. He noted that the softer currency has largely reflected a widening in yield differentials between Canada and the United States rather than domestic economic concerns. Overall, Macklem's comments reinforced a balanced, data-dependent approach, with the Bank seeing encouraging signs of economic improvement while remaining prepared to act if inflationary pressures re-emerge.
Major currency performance vs. USD (declines for the USD):
-
🇬🇧 British Pound:+1.04% (best performer)
-
🇳🇿 New Zealand Dollar: +0.64%
- 🇨🇠Swiss Franc:+0.47% (USD higher vs. CHF)
-
🇦🇺 Australian Dollar: +0.44%
-
🇪🇺 Euro: +0.38%
- 🇨🇦 Canadian Dollar: +0.11%
-
🇯🇵 Japanese Yen: +0.01%
Overall, the combination of softer U.S. inflation data, falling Treasury yields, and renewed expectations for Fed easing kept the dollar on the defensive, while sterling stole the spotlight on a mix of favorable U.S. macro developments and UK political optimism.
Summing up other markets, US stocks had an up and down and back up again day.Â
- Dow industrial average rose 151.04 points or 0.29% at 52654.28
- S&P rose 28.79 points or 0.38% at 7572.39
- Nasdaq rose 162.22 points or 0.62% at 26269.23
- Russell 2000 rose 11.49 points or 0.39% at 2976.25
In other markets:
- Crude oil rose $1.03 at $80.37 in an up and down day
- Gold rose $5
- Silver fell -$1.00
- Bitcoin was up $431 at $64969.Â
This article was written by Greg Michalowski at investinglive.com.