From inflation flashpoint to geopolitical freeze: The FX market’s split-screen week

This week in FX isn’t just about numbers on a calendar — it’s a two-act play with wildly different lighting. Act One hits Tuesday morning with CPI, the kind of data point that can turn the dollar from kingmaker to punching bag in under a heartbeat. Act Two rolls in Friday from the far side of the Bering Sea, where Trump and Putin will test how far the ice can hold before it cracks. In between, traders are just trying to keep their footing — one eye on their terminal, and one finger to the peace trade winds.

Let’s start with the hard number: consensus is for core CPI at +0.3% MoM. We’re swinging for +0.4%, and in this market, that tenth is the difference between a headwind and a tailwind. A hotter print gives the dollar a quick espresso shot — jittery, fast-burning — but the Fed’s September cut is still 90% baked in, and the labor market’s fragility is the long shadow on the chart. This isn’t the kind of inflation that lets Powell pull a Volcker cosplay; it’s the kind that makes him hedge his bets while the White House heckles from the cheap seats. The dollar may get to puff its chest for a session or two, but once PPI, retail sales, and the NFIB survey march in, the narrative could snap right back to “weak jobs, easing bias.”

Now — Alaska. Forget the snow globes and the salmon runs. This is geopolitical cold calculus on neutral ice. Trump arrives with sanctions in one hand and tariff threats in the other, hoping to strong-arm Putin into some version of a truce without looking like he’s giving away the store. Putin comes with the battlefield still inching in his favour, energy revenues only sagging 20% year-on-year, and a war chest of patience. No Zelenskyy, no Europeans, just two men on a frozen stage where the absence of key players is as loud as any speech.

The optics alone are market-moving. Oil has already bled 8% this month on the whiff of a truce, Ukraine’s bonds have rallied, and the euro — ever the sentimentalist when it smells peace in its neighbourhood — could catch a bid. But the days when G10 FX jumped at every Donbas headline are behind us. Energy’s lost its stranglehold on the tape, and traders now file Ukraine risk under “geopolitical premium” rather than “existential threat.”

To start the week, EUR/USD’s compass is still pointing to Washington, not Moscow. A surprise CPI beat could drag it down toward 1.1550, but in this dollar cycle, dips are more like beach balls under water — sooner or later, they pop back up. We still see 1.180+ as the next waypoint, especially once the Fed’s easing cycle gets back on the front foot. The ECB’s August radio silence and the ZEW survey’s likely gloom may wobble the single currency, but the bigger current is still a structurally weaker dollar.

So picture the week like this:

• Tuesday’s CPI is a weather front sweeping in, capable of flipping risk sentiment from tailwind to crosswind in minutes.
• Friday’s Alaska summit is a drifting iceberg — slow, silent, but capable of tearing open the hull of complacency if you misjudge its mass.

One is immediate, measurable, and tradeable. The other is slippery, psychological, an options market’s dream and a spot trader’s migraine. And as always in FX, it’s not the events themselves but the gap between expectation and reality that pays the rent. By Saturday morning, we’ll know whether this was just another week of chart noise… or one of those pivot points you only recognize when you’re looking back at the tape, coffee gone cold, wondering how you missed the turn.