The Fed has had plenty of breathing room after two consecutive downward inflation surprises, but the same cannot be said for other major central banks. The weaker-than-expected US CPI and Producer Price Index confirmed that inflation pressures had eased meaningfully through the end of the second quarter, allowing policymakers to remain patient rather than rush into another rate increase. However, this benign inflation picture is already being challenged by renewed escalation in the Middle East, with the price of Brent crude settling at around $85 after new US military action against Iran revived concerns about global energy supplies.
June inflation data painted a consistent picture of easing price pressures before oil prices rebound. Consumer inflation came in below expectations, while producer prices unexpectedly fell by -0.3% during the month. The weakness was concentrated in final demand goods, which fell 1.4%, their largest monthly decline since July 2022, as energy prices fell sharply. Taken together, the reports suggest that the Fed now has plenty of room to maintain its data-driven approach. Markets have largely abandoned expectations of an imminent interest rate hike, with attention turning instead to whether oil’s recent rally is temporary or develops into a more persistent inflation shock over the coming months.
Answering this question has become increasingly difficult now that the conflict between the United States and Iran has intensified again. US Central Command launched another wave of strikes on Iranian military targets on Wednesday morning after President Donald Trump warned that attacks would become more severe unless Tehran cooperates in peace negotiations. The stated goal was to further weaken Iranian capabilities used to threaten commercial shipping through the Strait of Hormuz. Trump’s comments also suggest that military operations could extend into next week without diplomatic progress, reinforcing expectations that geopolitical risks will remain high. Although Brent rose sharply, its gains were measured rather than disorderly, suggesting that markets still expect both sides to keep the conflict within manageable boundaries rather than allowing a full-scale regional war.
This distinction is particularly important for Europe. With the European Central Bank meeting just days away, policymakers once again face the risk that higher energy prices could delay inflation’s return to target. Bundesbank President Joachim Nagel warned today that the renewed conflict shows how “the situation remains very volatile” and reiterated that monetary policy must “react cautiously, but act decisively if necessary.”
Currency markets increasingly reflect these divergent political dynamics rather than classic risk sentiment. The New Zealand dollar continues to outperform following hawkish RBNZ comments, the Canadian dollar benefits from strong oil prices and the prospect of a firmer Bank of Canada, while the dollar, yen and Swiss franc lag despite rising geopolitical tensions. The message here is that falling inflation in the US has bought the Fed time, but higher oil prices are beginning to tighten policy constraints elsewhere.
Risks of silver falling to $50 as dollar stabilizes and solar demand changes
Silver’s failure to rally after a weaker-than-expected US CPI report suggests the market is facing more than just temporary macro headwinds. Resilient US dollar, weak buying interest emerges Replacement of copper in solar energy manufacturing They come together to dampen expectations and leave $50 Increasingly in focus if key support declines. Read more.
USD/CAD is testing key support around 1.4 as three tailwinds support the Canadian dollar ahead of the Bank of Canada
The Canadian dollar is drawing support from three independent macro drivers ahead of the Bank of Canada’s policy decision: Lower-than-expected US inflation has weakened the dollar, Brent above $86 is improving Canadian trade conditions, and markets are increasingly placing a more hawkish outlook on the Bank of Canada. Together they pushed USD/CAD towards the key support area at 1.40, where today’s policy could determine the next major move. Read more.
US Producer Price Index misses expectations as energy prices lead to biggest decline in commodities since 2022
US producer prices unexpectedly fell 0.3% in June, reinforcing the weak inflation message from Tuesday’s CPI report. This decline was driven by a 6.4% decline in energy prices, including a 12.0% decline in gasoline, which resulted in the largest decline in final demand commodities since July 2022. Together, the reports suggest that inflation had moderated materially ahead of the recent rebound in oil prices. Read more.
Eurozone industrial production unexpectedly fell by -0.2% m/m as the manufacturing sector recovery stalled
Eurozone industrial production fell by -0.2% in May, missing growth expectations and indicating that the region’s manufacturing sector recovery remains uneven. While energy production rose by 2.2% and capital goods production by 0.3%, a decline in intermediate goods and consumer durables led to a decline in total factory output. Read more.
China’s economy slows to 4.3%, weakest growth since 2022 despite slow June data
China’s economy expanded 4.3% year-on-year in the second quarter, missing expectations and recording its weakest growth since 2022. While industrial production accelerated to 5.3% and retail sales returned to 1.0% growth in June, the recovery remained uneven with investment in fixed assets deteriorating and real estate investment falling 18% in the first half of the year. Read more.
Daily forecast for EUR/USD
EUR/USD intraday bias remains neutral for now with continued consolidation above 1.1323. With support at 1.1499 turning into healthy resistance, further decline is expected. On the downside, a break of 1.1323 will resume the decline from 1.2081 to 100% prediction from 1.2081 to 1.1408 from 1.1848 at 1.1175. However, a decisive break of 1.1499 will bring back the upside bias to resistance at 1.1621.
In the bigger picture, focus is back on the 38.2% retracement level from 1.0176 to 1.2081 at 1.1353. A decisive breakout there would revive the medium-term bearish trend reversal case after the rejection of the 1.2 key cluster resistance level. Further decline we should see to 61.8% retracement levels at 1.0904. However, a strong bounce from 1.1353, followed by a break of resistance at 1.1621, will sustain the upside in the medium term.
