The U.S. Shopper 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 concept of restricted tariff pass-through to shopper costs, offering the Fed room to concentrate on labor market weak point and cementing September fee minimize expectations.
Let’s look at 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 looking ahead to indicators of tariff-driven inflation
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Knowledge consequence: 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 influence on items costs
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Market setting surrounding the occasion: Greenback beneath stress from weak jobs information and dovish Fed rhetoric, markets pricing 85%+ odds of September fee minimize, and tariff uncertainty
Occasion End result
The July U.S. inflation report delivered a market-friendly consequence regardless of blended headline numbers. Whereas core inflation accelerated to its highest tempo since January, the broader narrative centered on the restricted influence of tariffs on shopper costs and the Fed’s room to ease coverage.
Key factors from the U.S. CPI report:
- Tariff influence contained: Regardless of widespread considerations about commerce coverage results, firms continued absorbing most tariff prices relatively than passing them to shoppers
- Companies inflation persistent: Airfare surged 4.0% month-on-month whereas medical care prices rose 0.7%, displaying underlying worth pressures in providers
- Items deflation helped: Power costs declined 1.1% month-on-month, offering disinflationary stress to offset providers features
- Housing moderation continued: Shelter prices rose simply 0.2% for a second consecutive month, displaying encouraging cooling within the largest CPI element
- Combined tariff-exposed sectors: Home equipment surprisingly fell 0.9% whereas new automobile costs remained flat regardless of vital tariff publicity
The info painted an image of an economic system the place companies have been efficiently absorbing import price pressures whereas underlying inflation dynamics remained manageable, giving the Federal Reserve justification to prioritize employment considerations over worth stability within the close to time period.
Basic Bias Triggered: Greenback weak point throughout main pairs
Markets entered the CPI launch with the greenback already beneath 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 huge 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 larger levies because the 90-day truce deadline approached, Switzerland hit with 39% tariffs, and semiconductor/pharmaceutical sectors within the crosshairs. This created a fancy setting the place “dangerous information was excellent news” for fee minimize hopes, whereas commerce uncertainty added volatility.
Treasury Secretary Scott Bessent’s subsequent feedback advocating for a 50 basis-point September minimize intensified the dovish momentum, whereas Trump’s hints about naming Powell’s successor “early” added coverage uncertainty that additional weighed on the greenback.
The danger setting shifted from cautious optimism on commerce deal progress to renewed considerations 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: Web Bearish USD Occasion consequence + Threat-On State of affairs = Arguably the perfect odds of a internet constructive consequence
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 consequence triggered an instantaneous 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 lovely was how the basic 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 a sudden appeared much more enticing by comparability, with the two-year yield unfold shifting decisively in sterling’s favor.
Technical ranges held like clockwork too. The rising trendline assist round 1.3420 offered the proper launching pad, whereas the break above 1.3500 possible triggered technical purchase actions, extending the rally into Thursday.
By Friday’s shut, GBP/USD had settled comfortably above 1.3550, representing a stable 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 Web Bearish USD Occasion consequence + Threat-Off State of affairs
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 thought of the Fed holding off fee cuts in September. However this was an fascinating 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 consumers 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, possible noticed a internet constructive consequence with comparatively reasonable danger and commerce administration methods.
USD/JPY Lengthy: Web Bullish USD Occasion consequence + Threat-On State of affairs
USD/JPY 1-hour Foreign exchange Chart by TradingView
The goal occasion didn’t favor a bullish USD setup, with merchants zoning in on tender headline CPI numbers and what they could imply for a September Fed minimize.
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 fee minimize, pushing Treasury yields decrease and giving USD alternate options just like the yen a raise.
The pair slid to 146.30, breaking under vary assist, with the transfer possible strengthened by Bessent’s remarks favoring a BOJ fee hike. However Thursday’s hotter PPI print pulled again among the Fed fee minimize expectations and helped the greenback rebound, permitting USD/JPY to return to its earlier consolidation.
EUR/USD Quick: Bullish USD Occasion consequence + Threat-Off State of affairs
EUR/USD 1-hour Foreign exchange Chart by TradingView
The online bullish greenback situation didn’t play out for this Watchlist entry, as cooler US CPI added to expectations for a September Fed fee minimize and despatched the dollar broadly and sharply decrease.
EUR/USD didn’t attain the 1.1700 to 1.1750 quick 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 remains to be hovering close to that entry space, leaving merchants who took the setup with an unclear consequence 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 shopper worth 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 an important reminder that inflation dynamics stay fluid within the present tariff setting. Whereas rapid shopper worth 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 robust returns. Those that remained versatile sufficient to adapt to evolving information – notably round Thursday’s PPI shock – have been finest positioned to protect features in what proved to be a multi-day occasion sequence relatively than a single-release story.
General, we’d fee this evaluation as “extremely possible” in delivering a doubtlessly internet constructive consequence, given the robust favorable momentum transfer, and regardless of the pullback, the market closed the week notably above each the dialogue worth space and the publish occasion worth space.
Key Takeaways:
1. Coverage Divergence Trades Stay Highly effective
GBP/USD’s robust efficiency highlighted how financial coverage divergence can create sustained directional strikes even in risky 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: Deal with central financial institution coverage divergence themes when main economies are shifting in reverse instructions. These developments are likely 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’ skill to soak up import prices proved extra resilient than anticipated.
Motion: Monitor the hole between coverage bulletins and their actual financial influence. Markets usually overshoot in anticipating results which will take months to materialize or could also be partially absorbed by companies.
3. Look ahead to Secondary Knowledge That Can Reverse Narratives
Thursday’s PPI shock demonstrated how follow-up information releases can rapidly problem preliminary market interpretations. Whereas CPI confirmed contained shopper inflation, PPI revealed constructing wholesale pressures that might emerge later.
Motion: Don’t assume one information level tells the whole story. Plan for eventualities the place subsequent releases would possibly contradict preliminary market reactions, particularly in advanced environments like commerce wars the place results circulation by way of totally different channels.
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