Markets settle ahead of FOMC minutes later

USD

The dollar found its footing on Tuesday, with the DXY index stabilising around 99.6 as risk sentiment soured on the formal expiry of the US-Iran ceasefire. President Trump rejected an extension, keeping Brent above $90 and pinning long-end Treasury yields at fresh multi-year highs, with the 30-year briefly trading above 5.30% yesterday. Today's focus is the July FOMC minutes at 19:00 BST, where three dissents in favour of a 25bp hike (Hammack, Kashkari, Logan) will be scrutinised for conditional language, especially given Chair Warsh's aversion to forward guidance ahead of next week's Jackson Hole symposium.

EUR

The euro settled below 1.16 yesterday, with the dollar's haven bid reasserting itself after US-Iran ceasefire expiry news broke. As we have noted previously, EURUSD seems likely to remain stuck in a 1.15-1.16 range absent a geopolitical breakthrough, with the single currency's sensitivity to energy imports leaving it poorly placed for a renewed closure of the Strait of Hormuz. Yesterday brought little in the way of eurozone data, leaving the euro trading largely as the inverse of dollar risk dynamics. Today's calendar offers final July HICP at 10:00 BST, which should confirm the flash estimate of 2.9% and keep the debate over a September ECB hike alive, even as growth concerns argue for patience. With the domestic calendar otherwise light ahead of Friday's flash PMIs, rangebound trading appears set to continue, leaving tonight's FOMC minutes and Middle East headlines the more likely sources of a breakout.

GBP

Sterling ended yesterday modestly softer after a mixed labour market report that split the difference between a miss and a beat. Unemployment held at 4.9% against expectations of a fall to 4.8%, headline regular pay beat at 3.5%, but private-sector regular pay slowed to 2.8% — the weakest since 2020. This morning's July CPI release is the week's key domestic test, as we flagged in our week ahead. Measures have mostly matched economist forecasts, with headline CPI rising to 2.9% YoY as expected, though core rounded up to 2.6%, against the consensus prediction of a 0.1pp dip to 2.5% in July. Still, that represents only a marginal beat, which shouldn't force the MPC's hand on September 17th. Combined with looming fiscal uncertainty ahead of the autumn budget, we remain sceptical of sustained sterling upside that extends much beyond present levels.

CAD

The loonie continues to trade close to two-month highs, with USDCAD hovering just below 1.39 this morning. A three-day suspension of threatened US tariffs, announced overnight, has offered the loonie a temporary reprieve, though whether this persists will hang on the outcome of negotiations in the coming days. With no domestic data today, CAD is likely to trade off external drivers: the resumption of hostilities around the Strait of Hormuz cuts both ways, while tariff-related headlines remain a factor. Political developments aside, tonight's FOMC minutes are the main scheduled event, and we look for USDCAD to hold a 1.38–1.39 range, with Friday's retail sales the next domestic catalyst.

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