The U.S. Client Worth Index delivered a blended 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 client costs, offering the Fed room to concentrate on labor market weak point and cementing September charge reduce expectations.
Let’s study which pairs from our watchlist capitalized on this setting 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 awaiting indicators of tariff-driven inflation
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Information final result: 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 affect on items costs
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Market setting surrounding the occasion: Greenback below stress from weak jobs information and dovish Fed rhetoric, markets pricing 85%+ odds of September charge reduce, and tariff uncertainty
Occasion End result
The July U.S. inflation report delivered a market-friendly final result regardless of blended headline numbers. Whereas core inflation accelerated to its highest tempo since January, the broader narrative targeted on the restricted affect of tariffs on client costs and the Fed’s room to ease coverage.
Key factors from the U.S. CPI report:
- Tariff affect contained: Regardless of widespread issues about commerce coverage results, firms continued absorbing most tariff prices moderately than passing them to shoppers
- Providers inflation persistent: Airfare surged 4.0% month-on-month whereas medical care prices rose 0.7%, displaying underlying value pressures in providers
- Items deflation helped: Power costs declined 1.1% month-on-month, offering disinflationary stress to offset providers positive factors
- Housing moderation continued: Shelter prices rose simply 0.2% for a second consecutive month, displaying encouraging cooling within the largest CPI part
- Combined tariff-exposed sectors: Home equipment surprisingly fell 0.9% whereas new car costs remained flat regardless of vital tariff publicity
The info painted an image of an economic system the place companies had been efficiently absorbing import price pressures whereas underlying inflation dynamics remained manageable, giving the Federal Reserve justification to prioritize employment issues 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 below 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 vast for September cuts, with markets pricing aggressive easing expectations.
The backdrop featured Trump’s escalating tariff threats throughout a number of fronts – China dealing with 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 setting the place “unhealthy information was excellent news” for charge reduce hopes, whereas commerce uncertainty added volatility.
Treasury Secretary Scott Bessent’s subsequent feedback advocating for a 50 basis-point September reduce 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 setting shifted from cautious optimism on commerce deal progress to renewed issues 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: Internet Bearish USD Occasion final result + Danger-On Situation = Arguably the perfect odds of a internet constructive final result
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 final result triggered a direct breakout above short-term resistance, with Cable rocketing by way of the 1.3500 deal with inside minutes of the info launch. The preliminary spike carried the pair all the best way to 1.3580 – simply shy of the R2 goal we’d recognized – earlier than some profit-taking set in.
What made this setup notably stunning 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 appeared 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 assist round 1.3420 offered 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 acquire 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 Internet Bearish USD Occasion final result + Danger-Off Situation
USD/CHF 1-hour Foreign exchange Chart by TradingView
This setup was invalidated as a result of broad risk-on setting that ensued after the US CPI report poured chilly water on any concept of the Fed holding off charge cuts in September. However this was an attention-grabbing 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 strengthened a dovish Fed outlook. It was there that technical patrons 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 setting, due to the significance and vital response of the market to the US CPI occasion, and merchants who performed it that method, probably noticed a internet constructive final result with comparatively reasonable danger and commerce administration methods.
USD/JPY Lengthy: Internet Bullish USD Occasion final result + Danger-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 delicate headline CPI numbers and what they could imply for a September Fed reduce.
USD/JPY, which had been leaning towards a check of vary assist, 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 charge reduce, pushing Treasury yields decrease and giving USD alternate options just like the yen a raise.
The pair slid to 146.30, breaking beneath vary assist, with the transfer probably strengthened by Bessent’s remarks favoring a BOJ charge hike. However Thursday’s hotter PPI print pulled again a number of the Fed charge reduce expectations and helped the greenback rebound, permitting USD/JPY to return to its earlier consolidation.
EUR/USD Brief: Bullish USD Occasion final result + Danger-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 charge reduce and despatched the buck broadly and sharply decrease.
EUR/USD didn’t attain the 1.1700 to 1.1750 brief entry zone till after the CPI launch dragged the greenback decrease. Combined inflation and GDP figures from the Euro Space additionally failed to present the euro any clear path midweek.
The pair continues to be hovering close to that entry space, leaving merchants who took the setup with an unclear final result 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 client value information, restricted tariff pass-through, and rising Fed-BOE coverage divergence created an excellent setting for Cable bulls.
Nevertheless, Thursday’s PPI shock served as a vital reminder that inflation dynamics stay fluid within the present tariff setting. Whereas instant client value impacts stayed contained, wholesale pressures are constructing that might complicate the Fed’s easing path forward.
For merchants who executed the GBP/USD lengthy setup with correct danger administration, the occasion offered sturdy 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 moderately than a single-release story.
Total, we’d charge this evaluation as “extremely probably” in delivering a probably internet constructive final result, given the sturdy 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 sturdy efficiency highlighted how financial coverage divergence can create sustained directional strikes even in unstable markets. The mixture of Fed dovishness and BOE hawkishness offered a transparent elementary anchor that transcended short-term noise round tariffs and commerce tensions.
Motion: Concentrate on 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’ means to soak up import prices proved extra resilient than anticipated.
Motion: Monitor the hole between coverage bulletins and their actual financial affect. Markets typically overshoot in anticipating results which 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 client inflation, PPI revealed constructing wholesale pressures that might emerge later.
Motion: Don’t assume one information level tells the whole story. Plan for situations the place subsequent releases may contradict preliminary market reactions, particularly in complicated environments like commerce wars the place results stream by way of totally different channels.
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