Weekly Wrapup: Tariff Volatility, Fed Crosscurrents & Data-Driven Market Swings — Week of 4–8 August 2025
Weekly Wrapup: Tariff Volatility, Fed Crosscurrents & Data-Driven Market Swings — Week of 4–8 August 2025
1. Overview — Macro Turbulence in a Compressed Timeframe
The first full week of August packed in a torrent of geopolitical trade headlines, Fed policy recalibration, and mixed macroeconomic data that collectively drove sharp intraday reversals across currencies, commodities, and fixed income. The week began with Trump expanding steep tariffs to new countries, unsettling global risk sentiment, and ended with markets digesting a hawkish-sounding Bank of England rate cut that boosted GBP even as USD flows fluctuated on labor market, inflation expectation, and productivity data.
2. Tariffs & Geopolitics — Persistent Overhang
Trade tensions remained the dominant narrative.
Early Week Shock: Monday’s extension of tariffs to additional countries rattled global equities and pushed the dollar higher briefly before weaker data reversed gains.
Midweek Escalation: Trump reiterated tariff threats on India over Russian oil purchases, while the EU warned that its 15% tariff cap framework does not guarantee resolution of all disputes.
Russia Front: U.S.–Russia diplomacy showed intermittent progress, with Trump envoy Witkoff meeting Putin, but nuclear submarine deployments and threats of oil tariffs kept geopolitical risk premiums alive.
These developments kept volatility skew elevated in FX options and sustained haven demand for gold throughout the week.
3. U.S. Data & Fed Dynamics — Shifting Rate Path Expectations
Labor Market Surprise: Friday’s July Non-Farm Payrolls rose just 73k, well below the 110k forecast, with a 258k downward revision to prior months. Unemployment ticked up to 4.2%.
Service Sector Softness: ISM Non-Manufacturing PMI dropped to 50.1 (vs 51.5 forecast) with falling business activity.
Manufacturing Weakness: ISM Manufacturing PMI slipped to 48.0, marking a fifth month in contraction.
Inflation Expectations: University of Michigan long-term inflation expectations fell to 3.6% from 4.0%.
Market Repricing: By week’s end, futures implied a 90% probability of a September Fed cut, with two cuts priced by year-end. Fed voices were split — Waller and Bowman leaned toward cuts, while Bostic and Collins urged caution pending more data.
4. FX Performance — Event-Driven Churn
USD Index (DXY): Began firm on tariff risk, plunged post-NFP, ending with resistance near its 100-DMA at 99.83.
EUR/USD: Rose from early-week lows near 1.1390 to close above its 55-DMA (1.1565), aided by softer U.S. data and narrowing yield spreads.
GBP/USD: Benefited late from the BoE’s hawkish cut to 4%, breaking above its 21-DMA at 1.3403. Earlier, the pair traded heavy on growth fears before dip-buyers emerged.
USD/JPY: Reversed from a weekly high above 150 to close near 147.3, pressured by collapsing U.S. yields and haven yen buying.
5. Commodities — Divergent Drivers
Gold (XAU/USD): Maintained a bullish tone, oscillating between $3,328 and $3,370. Haven flows on tariff and geopolitical headlines kept it bid, with resistance at $3,335–3,345.
Oil (WTI/Brent): Extended losses early as OPEC+ confirmed September supply hikes, then steadied midweek on softer USD.
Copper: Remained under pressure on China demand concerns and tariff risk, slipping marginally on the week.
6. Rates & Credit — Curve Re-steepening on Fed Pivot Bets
Treasury yields collapsed up to 25 bps post-payrolls, led by the front end, steepening the 2s–10s spread by 10 bps to +51.5 bps — the sharpest steepening in months. Investment-grade spreads widened midweek on equity weakness but retraced by Friday as dovish Fed bets took hold.
7. UK & Eurozone — Diverging Policy Tones
BoE: Delivered a 25 bp cut to 4%, but the narrow 5-4 vote and Ramsden’s QT impact comment kept GBP supported.
ECB: No policy change, but softer EU retail sales (1.9% YoY) and PMI misses underlined downside risks for the euro.
8. Key Risks Ahead
Tariff Deadlines: August 8 Russia ceasefire-linked oil tariff trigger.
Fed Messaging: Jackson Hole symposium and CPI print could reshape cut expectations.
Geopolitical Flashpoints: India’s trade retaliation potential; EU-U.S. auto tariff resolution path.
Data Catalysts: U.S. CPI, retail sales; Eurozone PMIs.
9. Takeaways for Traders
FX: Favor EUR/USD dip-buys above 1.1560; sell USD/JPY rallies into 148–149.
Rates: Curve steepeners remain attractive into Fed pivot scenarios.
Commodities: Gold dips to $3,310–3,300 likely supported; oil shorts vulnerable to OPEC+ supply revision chatter.
Equities: Position for volatility spikes around tariff headlines; overweight defensives until policy clarity emerges.
