IC – Europe Fundamental Forecast | 31 July 2026

IC – Europe Fundamental Forecast | 31 July 2026

What happened in the Asia session?

Markets focused almost entirely on the Bank of Japan, which left its policy rate unchanged at 1.00% while maintaining a hawkish outlook through its policy statement, updated economic forecasts, and Governor Ueda’s comments. Although one policymaker voted for an immediate rate hike, investors reacted primarily to the decision to hold rates steady, sending the Japanese yen lower and lifting USD/JPY. Meanwhile, gold softened as demand for safe-haven assets eased, and crude oil prices drifted lower as geopolitical tensions showed signs of stabilizing.

What does it mean for the Europe & US sessions?

Today’s focus shifts from the BOJ to Europe and North America, with Eurozone flash inflation, Canadian GDP, and U.S. wage inflation and consumer sentiment expected to drive price action. Stronger Eurozone CPI could boost the euro and revive expectations of further ECB tightening, while a firm U.S. Employment Cost Index or higher inflation expectations would support the dollar and Treasury yields. At the same time, traders will continue monitoring the aftermath of the BOJ decision, speculation over Japanese currency intervention, geopolitical developments affecting oil markets, and the broader improvement in global risk appetite following strong U.S. corporate earnings.
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The Dollar Index (DXY)

Key news events today

Employment Cost Index q/q (12:30 pm GMT)

Revised UoM Consumer Sentiment (2:00 pm GMT)

Revised UoM Inflation Expectations (2:00 pm GMT)

Unemployment Claims (12:30 pm GMT)

What can we expect from DXY today?

The U.S. dollar is trading with a slightly bearish bias on Friday after the Federal Reserve left interest rates unchanged and delivered guidance that markets viewed as less hawkish than anticipated. Although U.S. Treasury yields remain at multi-year highs, investors have shifted their focus to today’s key U.S. economic data, including the Employment Cost Index, University of Michigan sentiment, and inflation expectations, which could reshape expectations for the Fed’s next move. At the same time, a stronger Japanese yen following the Bank of Japan meeting and speculation of official intervention has added further downside pressure on the dollar.

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
Medium Bearish

Gold (XAU)

Key news events today

Employment Cost Index q/q (12:30 pm GMT)

Revised UoM Consumer Sentiment (2:00 pm GMT)

Revised UoM Inflation Expectations (2:00 pm GMT)

What can we expect from Gold today?

Gold is trading with a mildly bearish intraday bias due to profit-taking, a firmer U.S. dollar, and higher yields following the Fed and BOJ meetings. However, the broader outlook remains supported by safe-haven demand, geopolitical uncertainty, and resilient buying above the $4,000 level. Today’s inflation and sentiment data from the U.S., together with Eurozone CPI, are likely to determine whether gold resumes its recent recovery or extends its short-term correction.

Next 24 Hours Bias   
Strong Bullish

The Euro (EUR)

Key news events today

Core CPI Flash Estimate y/y (9:00 am GMT)

CPI Flash Estimate y/y (9:00 am GMT)

What can we expect from EUR today?

The euro enters Friday, with investors focused on the Eurozone flash inflation (CPI) release later today, one of the most important data points ahead of the ECB’s September policy meeting. Consensus expectations are for headline CPI to rise to 2.9% YoY (from 2.8%) and core CPI to remain at 2.4% YoY, reflecting renewed inflation pressure largely driven by higher energy costs. Ahead of the release, Germany, the euro area’s largest economy, reported that July inflation accelerated to 2.8%, while core inflation eased slightly, reinforcing expectations that Eurozone inflation may remain above the ECB’s 2% target. 

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 with a mildly defensive tone, as investors focus on today’s major global macro events rather than Switzerland-specific developments. The biggest driver is the Bank of Japan’s decision to leave its policy rate unchanged at 1.00%, which has weighed on the Japanese yen and supported broader U.S. dollar demand across parts of the FX market. At the same time, traders are awaiting the Eurozone’s flash CPI inflation data and the U.S. employment cost index and revised University of Michigan sentiment and inflation expectations, all of which could influence expectations for future ECB and Federal Reserve policy. A stronger U.S. dollar or higher U.S. yields would typically pressure the Swiss franc, while any disappointing U.S. data or renewed risk aversion could revive demand for CHF as a traditional safe-haven currency.

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 Bullish

The Pound (GBP)

Key news events today

No major news event

What can we expect from GBP today?

The British pound (GBP) is trading on a cautious footing today, after the Bank of England (BoE) left the Bank Rate unchanged at 3.75% at yesterday’s policy meeting. While the decision was widely expected, the MPC adopted a slightly hawkish tone, with three members voting for a 25-basis-point rate hike due to concerns that higher energy prices and persistent inflation could keep price pressures elevated. Governor Andrew Bailey emphasized that the BoE is not committing to near-term rate hikes but remains highly data-dependent, particularly as geopolitical tensions in the Middle East continue to pose upside risks to inflation.

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
  Medium Bullish

The Canadian Dollar (CAD)

Key news events today

GDP m/m (12:30 pm GMT)

What can we expect from CAD today?

As of Friday, the Canadian dollar (CAD) is trading with a cautiously bullish tone after posting solid gains over the past two sessions. The main focus for the loonie today is the release of Canada’s May monthly GDP, where economists expect growth of 0.2% m/m, slowing from 0.5% previously, as shown in today’s economic calendar. A stronger-than-expected GDP reading would reinforce expectations that the Canadian economy is proving resilient despite ongoing U.S. trade uncertainties, likely providing additional support for CAD. Conversely, a weaker print could revive speculation that the Bank of Canada may eventually need to adopt a more accommodative stance.
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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

No major news event

What can we expect from Oil today?

Crude oil is trading modestly lower as improving global supply and recovering shipping flows outweigh persistent geopolitical risks in the Middle East. Brent remains near $88 and WTI around $82 per barrel after a strong monthly rally of roughly 20%, with traders locking in profits ahead of the weekend. Markets are also positioning for Sunday’s OPEC+ meeting, where another production increase is anticipated. Meanwhile, today’s major central bank decisions and inflation data, including the BOJ meeting, Eurozone CPI, Canadian GDP, and U.S. consumer sentiment, could influence the U.S. dollar and broader risk sentiment, adding further volatility to oil prices.

Next 24 Hours Bias
Medium Bullish

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