The United States 5-year consumer inflation expectation was recorded at 3.4% in July, which is lower than the anticipated 3.6%. This data forms part of the wider market analysis for information purposes only.
In foreign exchange, the EUR/USD pair rallied above 1.1550 due to weak US employment and manufacturing data. Similarly, the GBP/USD pair traded positively above 1.3250, recovering from six days of losses following disappointing US job figures.
Gold and Federal Reserve Rate Outlook
Gold increased to fresh weekly highs near $3,350 after a drop in US Treasury bond yields. The market reassessed the Federal Reserve’s rate outlook following the weak nonfarm payroll data.
In the cryptocurrency sphere, Bitcoin fell below $115,000 amidst rising liquidation pressures, despite a bullish July. Investors are now watching the $112,000 support level closely as the market faces bearish headwinds.
The Euro area remains resilient this summer, aided by the EU-US deal and increased German spending. While certain risks remain, a potential final rate cut could occur later this year or in early 2026, contingent on wage trends.
Given the weak US jobs report and lower-than-expected inflation, we believe the Federal Reserve will be hesitant to raise interest rates further. The latest nonfarm payroll numbers for July 2025, which came in at a disappointing 95,000 against an expected 180,000, reinforce this view. As a result, we are looking at derivative strategies that benefit from a pause or a potential rate cut later this year.
Market Strategies and Economic Divergence
This leads us to favor being long on foreign currencies against the US dollar. We see value in buying call options on the EUR/USD and GBP/USD pairs to capitalize on their upward momentum. This trend is reminiscent of the dollar weakness we observed in mid-2023 when similar economic data caused the Dollar Index (DXY) to fall significantly over several months.
The Euro area’s resilience, underscored by its latest Composite PMI reading of 52.8, provides a stark contrast to the US PMI, which recently fell into contraction territory at 49.5. This economic divergence reinforces our bullish outlook on the Euro. Therefore, we should consider strategies that favor European assets over their US counterparts.
We also anticipate gold’s rally will continue as US Treasury yields fall, with the 10-year yield now below 3.0% for the first time since early 2024. This drop in yields makes holding a non-yielding asset like gold more attractive. Buying call options on gold futures or gold-backed ETFs appears to be a prudent way to gain exposure to this trend.
Conversely, the cryptocurrency market is showing signs of weakness that we cannot ignore. With Bitcoin breaking below the key $115,000 level, we should consider buying put options to hedge our portfolios or speculate on a move down to the $112,000 support. On-chain data showing a recent spike in crypto exchange inflows suggests that some investors are preparing to sell, adding to the bearish pressure.
