In July, the University of Michigan’s 1-year consumer inflation expectations in the United States rose to 4.5%, up from 4.4% previously. This data provides an insight into consumer sentiment regarding inflation over the next year.
The EUR/USD currency pair experienced a rally, trading above 1.1550 following weak US employment and ISM Manufacturing PMI data. Similarly, GBP/USD turned positive, moving above 1.3250 after disappointing Nonfarm Payrolls and Manufacturing data in the US.
Gold Prices Rise
Gold prices have risen to new weekly highs around $3,350, assisted by a decline in US Treasury bond yields. This move reflects adjustments in market expectations concerning the Federal Reserve’s interest rate policy.
In the cryptocurrency market, despite a bullish trend in July, Bitcoin dropped below $115,000, facing potential support at $112,000. This follows a period of increased liquidations in the sector, demonstrating ongoing volatility.
The euro area’s economy demonstrated resilience over the summer, buoyed by EU-US agreement and German spending plans. Despite this, a possible final interest rate cut by the European Central Bank remains on the table as wage indicators continue to soften.
Implications For The US Dollar
With consumer inflation expectations rising in July 2025 but hard data on employment and manufacturing showing weakness, we see a clear signal. The Federal Reserve may have less room to be aggressive with interest rates. The latest CPI report for July, released today, confirmed this by showing core inflation at 3.1%, missing the 3.3% forecast and suggesting the Fed’s tightening from 2024 is taking full effect.
This environment is negative for the US dollar, which we’ve seen in the EUR/USD and GBP/USD rallies. We believe this dollar weakness has more room to run in the coming weeks. Therefore, we are looking at buying call options on EUR/USD with strike prices above 1.1600 to capture further upside while managing risk.
At the same time, the euro area’s strength could be capped by its own central bank. ECB President Lagarde mentioned in a speech on July 28, 2025, that the “disinflationary process is ongoing,” keeping a potential rate cut on the table for the autumn. This policy divergence means that while we are bullish on the euro against the dollar, we are cautious about a runaway rally and will hedge our positions accordingly.
The drop in US Treasury yields has made gold very attractive, pushing it towards $3,350. Looking back, this setup is reminiscent of the 2020 environment when falling real yields helped propel gold to what were then record highs. We should consider long positions in gold futures or options on gold-related ETFs to ride this momentum.
In the crypto market, the recent drop in Bitcoin below $115,000 after a strong July shows that leverage is being flushed out. Data from Glassnode on July 30, 2025, showed a spike in open interest for Bitcoin put options with strike prices near $110,000, as traders brace for more volatility. We should consider using option straddles, which profit from a large price move in either direction, to trade this uncertainty.
