UK data also held up, with Q2 GDP rising 0.4% and June output growing 0.3%.
US CPI slowed to 3.4%, PPI came in flat, and retail sales fell 0.6%, cutting September hike expectations. The Dollar Index slipped toward 99.6, while gold climbed above $4,400 and silver approached $66.
Currencies
Dollar Index: The Dollar Index slipped 0.31% to 99.61 as softer US data weakened its yield advantage. Weak July payrolls and in-line CPI reduced Fed tightening expectations, with a 65% chance of a September hold at 3.50%-3.75%. Money moved toward gold and the euro, while Hormuz tensions and crude near $82.40 provided some support for the dollar.
Euro: EUR/USD opened near 1.1540-1.1570, supported by a softer dollar. Weak US retail sales and 3.4% CPI cut September Fed hike odds to around 35%, while Eurozone inflation at 2.8% kept ECB hike expectations alive, strengthening the euro's rate outlook.
British Pound: GBP/USD traded near 1.3540 after reaching a three-month high of 1.3560. UK Q2 GDP growth of 0.4%, combined with weaker US consumer sentiment and cooling inflation, supported sterling. With the Fed at 3.50%-3.75% and the BoE at 3.75%, this week's UK data could play a larger role in the pair.
Japanese Yen: The yen traded near 159.4 per dollar, heading for a roughly 1% weekly loss after giving back about half of the gains from July's record US-Japan intervention. Wide rate gaps, fiscal concerns, and high import costs weighed on the currency. A September or October BOJ hike remains possible, while Bessent called for stronger fundamentals to support intervention.
Commodities
Gold
Gold climbed above $4,400/oz as weak US data pushed Fed hike odds down to roughly one-in-three from nearly 50%. Attention now turns to the FOMC minutes and Warsh's Jackson Hole speech. Israeli strikes on Lebanon and new US sanctions on Iran also supported gold, while crude flows through Hormuz helped limit the inflation impact.
Brent Crude
Brent held above $88/barrel after Israeli strikes in Lebanon killed 11 people, including a senior Hezbollah commander. Trump is preparing new sanctions on Iran as the US-Iran ceasefire approaches expiry and Hormuz talks remain stalled. Crude flows through the strait limited further gains, while Iran and Oman moved closer to a separate arrangement.
Silver
Silver approached $66/oz, helped by softer US inflation, consumer sentiment, and retail sales, which reduced Fed hike odds to around one-in-three. The FOMC minutes and Jackson Hole are next in focus, while tensions involving Iran and Lebanon added support.
Fixed Income
US 10 Year Treasury Note Yield: The 10-year Treasury yield rose to 4.7%, close to the week's 19-month high of 4.75%. Michigan one-year inflation expectations stayed above 4% for a fifth month, while energy and fiscal concerns weighed on longer-dated bonds. The 30-year yield reached a 19-year high, with possible Japanese reserve sales adding pressure despite softer PPI and weak retail sales.
UK 10 Year Bond Yield: The UK 10-year gilt yield eased to around 4.97%. Q2 GDP grew 0.4% QoQ, while June GDP beat forecasts with a 0.3% monthly gain, although household consumption slowed to 0.2%. The BoE held rates in July, with Bailey saying disinflation remains on track.
Japan 10 Year Government Bond Yield: Japan's 10-year JGB yield climbed to 2.86%, its highest in more than a month, as expectations for a September BOJ hike increased. Producer inflation eased slightly to 7.2% from 7.3%, but oil costs, AI-related demand for metals and machinery, and wage pressures kept inflation concerns strong.
Germany 10-Year Bond Yield: Germany's 10-year Bund yield traded around 3.1% as oil and US-Iran developments influenced the inflation outlook. Euro Area one-year inflation swaps stood near 2.4%, while July inflation reached 2.9%. Q2 GDP grew 0.4%, its strongest pace since early 2025, supporting expectations for a 25bps ECB hike in September.
Economic Data
United States Inflation Rate
US annual inflation slowed to 3.4% in July from 3.5%, its second straight decline, as energy pressures eased. Monthly CPI rose 0.1%, while core CPI increased 0.2% and annual core inflation fell to 2.5%.
United States Producer Price Inflation MoM
Producer prices were flat in July, below forecasts for a 0.2% rise. Services increased 0.2% and construction 2.2%, while goods fell 0.7% as energy costs dropped 3.1%. Annual PPI slowed to 4.7% from 5.5%, below the 4.9% forecast, while core PPI rose 0.2% MoM and 4.2% YoY, slightly below expectations.
United States Retail Sales
Retail sales fell 0.6% in July, missing forecasts for a 0.1% increase and reversing June's 0.2% gain. The first decline since October 2025 reflected weaker online, auto, gasoline, and electronics sales, partly due to Amazon Prime Day shifting spending into June. Excluding autos and gas, sales fell 0.2%, while the GDP-linked control group dropped 0.4%, its sharpest decline since early 2025.
United Kingdom Monthly GDP MoM
UK GDP grew 0.3% in June after no growth in May, helped by lower energy costs, warm weather, and World Cup football. Services rose 0.4%, led by professional, scientific, and information activities, offsetting weaker production and construction. Annual growth reached 1.1%, beating the 0.8% forecast, while three-month growth matched expectations at 0.4%.
