IC – Europe Fundamental Forecast | 29 July 2026
What happened in the Asia session?
The Asia session was driven almost entirely by Australia’s softer-than-expected inflation report, which reduced expectations for additional RBA tightening and triggered broad Australian dollar weakness. At the same time, Australian stocks and bonds benefited from the prospect of a more patient central bank. Elsewhere, trading activity remained cautious as investors looked ahead to the Federal Reserve’s interest rate decision and Chair Kevin Warsh’s press conference later today, while elevated geopolitical risks continued to underpin the U.S. dollar and oil prices.
What does it mean for the Europe & US sessions?
Mrket sentiment is being driven by softer Australian inflation data, heightened geopolitical tensions in the Middle East, and anticipation of the Federal Reserve’s policy decision later today. Australia reported a weaker-than-expected CPI, with monthly inflation falling 0.1% (vs. +0.2% expected) and annual CPI slowing to 3.8% (vs. 4.0% expected), reinforcing expectations that the Reserve Bank of Australia may have less urgency to tighten policy further. The Australian dollar weakened following the release, while the U.S. dollar remained broadly supported as traders positioned ahead of the Fed announcement.
The Dollar Index (DXY)
Key news events today
Federal Funds Rate (6:00 pm GMT)
FOMC Statement (6:00 pm GMT)
FOMC Press Conference (6:30 pm GMT)
What can we expect from DXY today?
The U.S. dollar traded with a firm tone during Wednesday’s session as investors remained cautious ahead of the Federal Reserve’s interest rate decision, FOMC statement, and Fed Chair Kevin Warsh’s press conference later today. Markets are overwhelmingly expecting the Fed to leave the federal funds rate unchanged at 3.75%, although futures continue to price roughly a one-third probability of a surprise 25-basis-point rate hike. Traders are instead focusing on the Fed’s forward guidance for clues on whether another rate increase could come as early as September.
Central Bank Notes:
- The Federal Open Market Committee (FOMC) left the federal funds rate unchanged at 3.50%–3.75% at its June 16–17, 2026, meeting, marking another pause in the policy cycle. Under new Fed Chair Kevin Warsh, policymakers signaled a more cautious and hawkish stance as inflation remains above target despite moderating energy prices.
- The Committee remains committed to achieving maximum employment and returning inflation to its 2% objective. Labor market conditions have remained relatively stable, with job gains continuing at a moderate pace and the unemployment rate projected to remain near 4.4% through 2026.
- Inflation continues to be the primary concern for policymakers. Headline inflation remains elevated, supported by earlier energy-related price pressures and persistent services inflation. The June projections showed higher inflation forecasts than previously expected, leading several officials to favor keeping policy restrictive for longer.
- Economic activity continues to expand at a moderate pace. Productivity growth, capital investment, and AI-related spending remain supportive of growth, while consumer spending and housing activity show signs of slowing compared with late 2025 and early 2026.
- The June 2026 Summary of Economic Projections (SEP) revealed a more divided Committee. Nine officials projected at least one rate hike during 2026, while others expected rates to remain unchanged or eventually decline. The median outlook shifted toward a higher-for-longer policy path compared with earlier projections.
- The Committee emphasized a data-dependent approach and noted that future decisions will depend on incoming data on inflation, employment, and economic growth. Officials acknowledged that geopolitical developments and energy markets remain important upside risks to inflation.
- The FOMC continues its balance sheet normalization program, maintaining Treasury runoff caps at $5 billion per month and agency mortgage-backed securities (MBS) runoff caps at $35 billion per month, while ensuring ample reserves remain in the banking system.
- The next meeting is scheduled for 28 to 29 July 2026.
Next 24 Hours Bias
Weak Bullish
Gold (XAU)
Key news events today
Federal Funds Rate (6:00 pm GMT)
FOMC Statement (6:00 pm GMT)
FOMC Press Conference (6:30 pm GMT)
What can we expect from Gold today?
Gold traded cautiously during Wednesday’s Asia session as investors refrained from taking large positions ahead of the Federal Reserve’s policy decision and Chair Kevin Warsh’s press conference later today. Spot gold hovered around $4,020-$4,030 per ounce, with the U.S. dollar and Treasury yields remaining relatively firm as markets largely expect the Fed to leave interest rates unchanged at 3.75%, while still assigning a meaningful probability of another rate hike later this year.
Next 24 Hours Bias
Weak Bullish
The Euro (EUR)
Key news events today
No major news event
What can we expect from EUR today?
The euro is trading cautiously ahead of today’s Federal Reserve interest rate decision and FOMC press conference, with EUR/USD holding near the 1.14 level as investors await guidance on the U.S. policy outlook. The European Central Bank (ECB) kept interest rates unchanged at its July meeting, maintaining the deposit rate at 2.25%, while emphasizing that future decisions will remain data-dependent. However, the ECB acknowledged that higher energy prices and ongoing geopolitical tensions continue to pose upside risks to inflation, leaving the door open for another rate hike as early as September if inflationary pressures persist.
Central Bank Notes:
- The Governing Council kept all three key interest rates unchanged at its 22–23 July meeting, maintaining the deposit facility at 2.25%, the main refinancing operations rate at 2.40%, and the marginal lending facility at 2.65%. The ECB reiterated that monetary policy will remain meeting-by-meeting and data-dependent, with no pre-commitment to a future rate path.
- The euro area economy continues to expand at a modest pace, with growth expected to remain below trend but resilient. While domestic demand and the labor market continue to provide support, elevated uncertainty, higher energy prices, and weaker external demand are expected to limit the pace of expansion through the second half of 2026.
- Balance-sheet normalization continues as planned. The APP and PEPP portfolios continue to decline predictably as the Eurosystem no longer reinvests maturing securities. The ECB has indicated that liquidity conditions remain orderly and that it stands ready to preserve the smooth transmission of monetary policy if necessary.
- Inflation risks remain tilted to the upside. Renewed volatility in oil and natural gas prices following geopolitical tensions in the Middle East could keep headline inflation above the ECB’s 2% target for longer. Policymakers are closely monitoring the persistence of energy-driven inflation, wage developments, and any potential second-round effects.
- The ECB is expected to maintain a cautious policy stance into August. Future policy decisions will continue to depend on incoming inflation data, wage growth, underlying inflation measures, credit conditions, and the effectiveness of monetary policy transmission. While markets see the possibility of further tightening later in the year if inflation remains persistent, the ECB has not committed to additional rate increases.
- For the euro (EUR), the outlook remains balanced. Stable ECB policy provides support, but renewed energy-price shocks and global risk sentiment may generate two-way volatility. The euro could strengthen if euro-area inflation remains sticky or economic data outperform expectations, while weaker growth or a more hawkish Federal Reserve could weigh on the currency.
- Euro-area bond markets are expected to remain sensitive to inflation expectations and geopolitical developments. Front-end yields should remain relatively anchored while the ECB stays on hold, whereas longer-dated yields will continue to respond to energy-price developments, inflation expectations, and global risk sentiment.
The next meeting is on 9 to 10 September 2026
Next 24 Hours Bias
Weak Bearish
The Swiss Franc (CHF)
Key news events today
No major news event
What can we expect from CHF today?
The Swiss franc (CHF) is trading cautiously ahead of the Federal Reserve’s interest rate decision and FOMC press conference, which are expected to be the main drivers of CHF price action today. With no major Swiss economic data scheduled, the franc is largely being influenced by external factors, particularly U.S. monetary policy and overall market risk sentiment. Traders are monitoring whether the Fed maintains a hawkish tone, as higher U.S. yields would likely support the U.S. dollar against the franc.
Central Bank Notes:
- At its monetary policy assessment on 18 June 2026, the Swiss National Bank left the SNB policy rate unchanged at 0.00%, in line with market expectations. Policymakers maintained that the current policy setting remains appropriate given low inflation and ongoing global economic uncertainty.
- Inflation remains exceptionally subdued in Switzerland. Recent data show consumer price growth staying comfortably within the SNB’s price stability range, with headline inflation around 0.6% year-on-year in May 2026, while underlying inflation pressures remain limited despite higher global energy prices.
- The SNB continues to view medium-term inflation pressures as largely unchanged. While energy prices linked to Middle East tensions have temporarily lifted near-term inflation expectations, the stronger Swiss franc has helped offset imported inflation, supporting the central bank’s decision to maintain rates at current levels.
- External risks remain elevated. Policymakers highlighted ongoing geopolitical tensions, trade uncertainties, and slower global growth prospects, particularly in key export markets such as the Eurozone and the United States. These factors continue to warrant a cautious policy approach.
- Swiss economic activity remains resilient but modest. GDP growth is expected to remain around 1–1.5% in 2026, supported by domestic demand, although manufacturing and export-oriented sectors continue to face challenges from a strong franc and softer foreign demand.
- The SNB reiterated its readiness to act if necessary. The Governing Board emphasized that it remains willing to intervene in foreign exchange markets to counter excessive Swiss franc appreciation and stands prepared to adjust policy should inflation or economic conditions deviate materially from expectations.
The next meeting is on 24 September 2026.
Next 24 Hours Bias
Medium Bearish
The Pound (GBP)
Key news events today
No major news event
What can we expect from GBP today?
The British pound is trading cautiously ahead of two major central bank events: today’s Federal Reserve interest rate decision and Thursday’s Bank of England (BoE) policy announcement. Market participants expect the Fed to leave rates unchanged today, while the BoE is also widely expected to keep the Bank Rate at 3.75% tomorrow. Investors are focusing on the BoE’s guidance regarding inflation and future policy, especially after recent UK inflation data came in softer than expected and surveys showed inflation expectations continued to ease in July. This has reduced immediate pressure on the BoE to tighten policy further, although officials are still expected to maintain a cautious stance because inflation remains above target.
Central Bank Notes:
- The Bank of England’s Monetary Policy Committee (MPC) met on 17–18 June 2026 and voted 7–2 to maintain the Bank Rate at 3.75%. Two members, Megan Greene and Chief Economist Huw Pill, voted for a 25-basis-point increase to 4.00%, citing concerns about inflation expectations and the risk of persistent price pressures. The majority favored keeping policy unchanged while assessing the evolving impact of recent energy-market developments.
- Quantitative tightening (QT) continues as planned, with the Bank maintaining its balance-sheet reduction strategy through gilt runoff and sales. The MPC considers QT an important part of policy normalization while preserving sufficient liquidity in financial markets.
- Inflation remains above target despite some easing in energy prices. The Bank expects CPI inflation to remain around or above 3% during the second half of 2026, compared with the 2% target. While recent declines in oil and gas prices have reduced the near-term inflation outlook, policymakers remain concerned about potential second-round effects through wages and services inflation.
- UK economic growth remains subdued. The MPC noted signs of weakening demand, falling vacancies, and a softer labor market, although recent wage growth data came in slightly stronger than expected. The Committee expects economic activity to remain modest as higher borrowing costs and uncertainty continue to weigh on business investment and consumer spending.
- Global risks remain elevated, particularly due to developments in the Middle East and their potential effects on energy markets, trade flows, and financial conditions. Although tensions have eased somewhat following diplomatic progress, policymakers continue to monitor commodity-price volatility and its implications for UK inflation.
- Inflation risks remain tilted to the upside. The MPC highlighted concerns that higher inflation expectations, resilient wage growth, and renewed energy-price shocks could require a more restrictive policy stance. However, downside risks from weaker growth and increasing economic slack offset this influence.
- The MPC continues to emphasize a data-dependent and restrictive policy stance, with no commitment to either rate cuts or hikes in the near term. Governor Andrew Bailey stated that policymakers will remain vigilant and stand ready to respond if inflation proves more persistent than expected. The presence of two votes for a rate increase demonstrates that the Committee remains alert to upside inflation risks.
- The next meeting is on 30 July 2026.
Next 24 Hours Bias
Medium Bearish
The Canadian Dollar (CAD)
Key news events today
No major news event
What can we expect from CAD today?
The Canadian dollar (CAD) traded cautiously as investors focused on the Federal Reserve’s interest rate decision and Chair Kevin Warsh’s press conference later in the day. The Fed is widely expected to leave rates unchanged at 3.75%, but markets are looking for guidance on the timing of future rate cuts. Ahead of the announcement, the Canadian dollar has remained under modest pressure after recent weakness caused by lower crude oil prices, although it recovered slightly from a two-week low during Tuesday’s session. Since Canada is a major oil exporter, fluctuations in crude prices continue to be one of the primary drivers of the loonie.
Central Bank Notes:
- At its 15 July 2026 meeting, the Governing Council maintained the overnight rate target at 2.25%, marking a sixth consecutive decision at this level and extending the policy pause that began in late 2025. The decision was in line with market expectations. It reflects the Council’s view that the current stance remains appropriately restrictive to return inflation sustainably to the 2% target over the projection horizon while balancing two‑sided risks.
- External conditions remain challenging, with persistent geopolitical tensions in the Middle East and ongoing U.S. trade frictions continuing to weigh on global sentiment and supply chains. Council minutes and external commentary highlight that these risks are asymmetric, with the potential either to slow foreign demand or to heighten volatility in global energy and other commodity prices, warranting a nimble policy stance.
- Real GDP appears to have resumed growth in Q2 2026 after stalling earlier in the year, with the Bank and private forecasters now expecting output to expand at roughly a 2.3–2.5% annualized pace, slightly above the April baseline. Growth remains supported by resource shipments and exports amid robust global energy demand, while domestic activity is gradually broadening as consumption and housing stabilize and business investment shows tentative improvement from earlier weakness.
- The labour market remains tight but continues a gradual rebalancing: employment rose by about 18,000 positions in June, and the unemployment rate edged down to 6.5%, tying its lowest level since mid‑2024. Wage growth has cooled from prior peaks, and regional participation increases are consistent with easing wage pressures over time, although pockets of labour scarcity persist in energy‑related and some service sectors.
- Headline CPI has drifted above 2% and was around 3.2% year‑over‑year in May, with inflation expected to remain elevated in June before gradually easing as energy effects fade. Core measures have moved closer to 2% on average, and the share of CPI components running above 3% has fallen back toward historical norms, suggesting underlying inflation is moderating even as near‑term headline readings remain somewhat higher. The Bank continues to project inflation returning to the 2% target in early 2027, conditional on oil prices stabilizing near their assumed range.
- High‑frequency indicators point to continued expansion in manufacturing and exports into early summer, with Purchasing Managers’ Index readings still in positive territory, supported by solid energy‑sector activity and demand for intermediate goods. However, surveys indicate that firms’ capex intentions remain cautious in light of trade uncertainty and past weakness in domestic demand, suggesting investment may recover only gradually.
- Credit growth remains moderate, and bank lending spreads and deposit pricing show limited additional pass‑through from recent global rate moves, keeping domestic financial conditions relatively stable. Mortgage rates remain somewhat elevated compared with pre‑tightening levels but have been broadly unchanged in recent months, contributing to a measured moderation in housing activity rather than an abrupt adjustment.
- The next meeting is on 2 September 2026.
Next 24 Hours Bias
Weak Bearish
Oil
Key news events today
EIA Crude Oil Inventories (2:30 pm GMT)
What can we expect from Oil today?
Oil prices traded with a bullish bias during the Asian session after Australia’s June CPI data came in softer than expected, reinforcing expectations that the Reserve Bank of Australia could remain accommodative. However, the primary driver of crude remains the market’s focus on the Federal Reserve’s interest rate decision and Chair Kevin Warsh’s press conference later today, where policymakers are widely expected to leave the federal funds rate unchanged at 3.75%. Traders are looking for any guidance on the timing of future rate cuts or hikes, as a more dovish Fed could weaken the U.S. dollar and support oil demand, while a hawkish tone could limit gains.
Next 24 Hours Bias
Medium bearish
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