Weekly Forex Highlights (August 11–17, 2025)
- U.S. Dollar Slips Amid Inflation and Trade Outlook: At the start of the week, the U.S. dollar weakened as markets awaited U.S. inflation data and the looming U.S.-China tariff truce deadline. The dollar index dipped slightly, while the yen strengthened amid Japan’s holiday trading lull. Investors are increasingly pricing in a Federal Reserve rate cut in response to softer labor and inflation data.
- Emerging Market Currencies Rally: Latin American currencies, including the Brazilian real and Mexican peso, gained strong real interest rates and improved risk sentiment. The move reflected renewed investor interest in emerging-market carry trades, as expectations for Fed easing took hold.
- U.S.-China Tariff Truce Extends Market Optimism: A 90-day extension of the U.S.-China tariff truce bolstered global sentiment. Japanese equities surged to record highs, while the Australian dollar dipped following the Reserve Bank of Australia’s surprise 25 bps rate cut. Markets now await U.S. and UK economic data to guide future monetary policy.
Bottom Line: Last week’s forex dynamics were shaped by dovish signals from the Fed, easing of trade tensions, and notable outperformers in emerging markets. As sentiment improves and key data approaches, traders are advised to stay watchful for volatility and shifting momentum across major and EM currency pairs.
Market Outlook for Next Week (Aug 18–24, 2025)
- Markets are gearing up for a pivotal Jackson Hole Symposium (August 21–23), where Fed Chair Jerome Powell is expected to provide critical signals on interest rate policy. While investor expectations of a September rate cut remain high, recent mixed signals on inflation and employment may temper enthusiasm.
- U.S. inflation remains stubborn, but subdued enough to keep the door ajar for monetary easing. Simultaneously, renewed optimism from trade developments, especially the 90-day U.S.-China tariff truce, continues to buoy risk sentiment
Key Indicators to Watch:
- Powell’s tone at Jackson Hole, whether dovish or cautious, could spark volatility.
- U.S. labor data may validate or derail rate-cut expectations
- Renewed carry interest in emerging markets may sustain flows into currencies like BRL, MXN, and AUD.
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