IC – Europe Fundamental Forecast | 12 August 2026

IC – Europe Fundamental Forecast | 12 August 2026

What happened in the Asia session?

Asia markets are trading cautiously today, with relatively limited regional economic data leaving the focus on the upcoming U.S. July CPI report and geopolitical developments. Oil and gold are receiving support from renewed Middle East shipping concerns and broader geopolitical uncertainty, while the U.S. dollar is largely range-bound ahead of the inflation release. The Japanese yen remains sensitive to intervention risks as Japanese markets return from the holiday, while the Australian dollar is digesting the RBA’s decision to keep rates at 4.35% and its warning that inflation remains elevated.

What does it mean for the Europe & US sessions?

The key theme today is U.S. inflation. European markets may trade relatively cautiously during the first half of the session, but volatility could increase substantially around the 12:30 GMT U.S. CPI release. A hotter-than-expected CPI would likely favor the USD and Treasury yields while weighing on gold and rate-sensitive equities; a softer reading could weaken the dollar and support gold, equities, and risk assets. At the same time, traders should keep an eye on oil and Middle East developments, as another rise in energy prices could complicate the inflation outlook.

The Dollar Index (DXY)

Key news events today

Core CPI m/m (12:30 pm GMT)

Core CPI y/y (12:30 pm GMT)

CPI m/m (12:30 pm GMT)

CPI y/y (12:30 pm GMT)

What can we expect from DXY today?

The dollar enters Wednesday with a neutral-to-slightly bearish bias as traders wait for the U.S. July CPI report, which is likely to be the main catalyst for today’s FX session. With headline inflation expected at 3.4% and core inflation at 2.5%, a softer-than-expected reading could reinforce expectations that the Fed will have room to ease policy and potentially push the dollar lower. Conversely, stronger inflation could revive expectations for tighter monetary policy and trigger a sharp USD rebound. Geopolitical tensions and elevated oil prices add another layer of uncertainty because persistent energy costs could keep inflation elevated.

Central Bank Notes:

• The Federal Open Market Committee (FOMC) kept the federal funds rate unchanged at 3.50%–3.75% at its July 28–29, 2026, meeting, marking the fifth consecutive meeting without a policy change. The Committee voted 9–3 to maintain rates, with three members dissenting in favor of a 25-basis-point rate hike, highlighting growing concern among some policymakers that inflation remains too high.
• The Committee reaffirmed its dual mandate of maximum employment and price stability. Officials noted that the labor market remains resilient, with job gains broadly keeping pace with labor force growth and the unemployment rate remaining relatively stable. The FOMC continues to view employment conditions as consistent with a healthy economy while remaining vigilant for signs of labor market weakening.
• Inflation remains the Committee’s primary concern. While some recent inflation data have shown moderation, overall price pressures remain above the Fed’s 2% target. Policymakers emphasized that elevated inflation continues to be driven in part by higher energy prices and persistent supply-side pressures, leading the Committee to maintain a restrictive monetary policy stance.
• Economic activity continues to expand at a solid pace despite elevated uncertainty. Strong productivity growth, business investment, and continued spending related to artificial intelligence remain supportive of economic growth. However, the FOMC acknowledged that geopolitical tensions, particularly developments affecting global energy markets, continue to pose risks to both inflation and the broader economic outlook.
• The July meeting highlighted increasing divisions within the Committee. Three policymakers—Beth Hammack, Neel Kashkari, and Lorie Logan—voted against the majority, preferring an immediate rate increase. This unusually large number of dissents reflects growing concern among some officials that inflation could remain persistent and may require additional policy tightening if progress stalls.
• Chair Kevin Warsh reiterated that future policy decisions will remain strictly data-dependent. He avoided providing explicit forward guidance, emphasizing that upcoming decisions will depend on incoming inflation, employment, and growth data. Warsh also stressed that the Committee remains fully committed to returning inflation to its 2% objective and is prepared to act if inflationary pressures intensify.
• The FOMC continues its balance sheet normalization program without changes. The Federal Reserve will maintain Treasury runoff caps at $5 billion per month and agency mortgage-backed securities (MBS) runoff caps at $35 billion per month, while continuing to ensure ample reserves remain available within the banking system.
• The next meeting is scheduled for 15 to 16  September 2026.

Next 24 Hours Bias
Weak Bullish

Gold (XAU)

Key news events today

Core CPI m/m (12:30 pm GMT)

Core CPI y/y (12:30 pm GMT)

CPI m/m (12:30 pm GMT)

CPI y/y (12:30 pm GMT)

What can we expect from Gold today?

Gold remains moderately bullish today, supported by geopolitical uncertainty and anticipation of U.S. inflation data. The key catalyst for today’s session is the CPI release: softer inflation could strengthen the case for lower U.S. rates and potentially push gold higher, while a hotter reading could lift the dollar and Treasury yields and create downside pressure. From a technical perspective, $4,388 is an important near-term support area, while a sustained break above $4,429–$4,450 could open the door to further upside.

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 starts Wednesday with a cautious to mildly bearish bias against the dollar, with the main focus firmly on the U.S. July CPI report. A stronger-than-expected inflation reading could push Treasury yields and the dollar higher, creating further downside pressure on EUR/USD. Conversely, softer inflation could weaken the dollar and give the euro room to recover. For traders, U.S. CPI and subsequent Fed-rate expectations are likely to be the dominant drivers of EUR/USD today.

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 Bullish

The Swiss Franc (CHF)

Key news events today

No major news event

What can we expect from CHF today?

The Swiss franc remains fundamentally supported by safe-haven demand and its relatively strong external position, but the latest softer inflation data is limiting expectations for SNB tightening. With the policy rate at 0%, traders will likely focus on incoming inflation, European economic developments, global risk sentiment and any signals from the SNB ahead of its next monetary-policy assessment in September.

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
Weak Bearish

The Pound (GBP)

Key news events today

No major news event

What can we expect from GBP today?

Sterling is being supported by a softer U.S. dollar and relatively stable BoE expectations, while falling UK inflation and slower wage growth are limiting expectations for aggressive BoE tightening. GBP/USD around 1.3500 remains an important area to watch, with today’s U.S. CPI likely to determine whether the pound can extend its recent gains or face a pullback.

Central Bank Notes:

• The Bank of England’s Monetary Policy Committee (MPC) met on 29–30 July 2026, with the decision and updated Monetary Policy Report scheduled for publication on 30 July. The previous meeting in June resulted in a 7–2 vote to maintain the Bank Rate at 3.75%, with Megan Greene and Huw Pill voting for a 25-basis-point increase to 4.00%. The July meeting is particularly important because it includes a new Monetary Policy Report and updated economic projections.
• UK inflation has continued to move closer to the Bank’s 2% target. CPI inflation fell to 2.6% in June 2026, from 2.8% in May, while core CPI remained at 2.6%. Services inflation also eased from 3.7% to 3.6%, suggesting that underlying domestic price pressures are gradually moderating. Nevertheless, services inflation remains above the 2% target and continues to be an important consideration for the MPC.
• The inflation outlook remains complicated by energy-market developments. The earlier Middle East energy shock pushed inflation higher and created uncertainty around the speed at which inflation would return sustainably to target. Although energy prices have fallen from their earlier peaks, they remain elevated relative to pre-conflict levels. The MPC therefore continues to monitor the potential for energy costs to feed into wages, services prices and inflation expectations.
• The UK economy remains relatively subdued, with weak demand and signs of cooling in the labour market weighing against the upside inflation risks. The combination of slower economic activity and easing inflation creates a difficult policy balance for the MPC: keeping rates restrictive for too long could weaken growth further, while easing policy prematurely could allow persistent domestic inflation pressures to return.
• Wage growth and services inflation remain key risks for monetary policy. Although headline CPI has fallen substantially from earlier 2026 levels, the MPC is likely to remain cautious until there is greater evidence that domestic inflation pressures are sustainably declining. The moderation in services inflation to 3.6% is encouraging, but it remains above levels consistent with the Bank’s 2% inflation target.
• Quantitative tightening (QT) remains part of the Bank’s broader monetary-policy framework. The MPC continues reducing the stock of UK government bonds held for monetary-policy purposes through its balance-sheet reduction programme. At the June meeting, the stock of government bonds held for monetary-policy purposes stood at approximately £522 billion.
• The policy outlook remains highly data-dependent. With inflation moving lower but services inflation and wage pressures still elevated, the MPC faces a delicate balance between maintaining sufficiently restrictive policy and avoiding unnecessary damage to economic growth. Market participants had previously placed substantial probability on the Bank Rate remaining at 3.75% through the July meeting, although expectations for later meetings showed greater uncertainty, including the possibility of rate increases if inflation proves persistent.
• The next meeting is on 17 September 2026.
  
  Next 24 Hours Bias
  Weak Bullish

The Canadian Dollar (CAD)

Key news events today

No major news event

What can we expect from CAD today?

The Canadian dollar is supported by elevated oil prices, strong recent Canadian employment data, and a softer USD environment ahead of U.S. CPI. The main risk to CAD is a hotter-than-expected U.S. inflation reading, which could strengthen the dollar and push USD/CAD higher. The 1.3900 area is an important level to watch; sustained trading below it would signal continued CAD strength, while a rebound above 1.4000 could indicate a deeper correction.
​
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 Bullish

Oil

Key news events today

EIA Crude Oil Inventories (2:30 pm GMT)

What can we expect from Oil today?

Oil maintains a bullish bias on Wednesday, with Brent approaching the psychologically important $90 level as geopolitical tensions and shipping disruptions continue to support the market. However, the rally faces two important risks: a breakthrough in U.S.–Iran negotiations could quickly reduce the geopolitical premium, while rising OPEC+ production could weigh on prices over the medium term. For traders, $90 on Brent is an important level to watch, while today’s U.S. CPI and inventory figures could determine whether the current bullish momentum continues.

Next 24 Hours Bias
Weak Bullish

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