FX week ahead: All eyes on Powell’s tone and Friday’s jobs print

The Fed may be standing pat this month, but it’s starting to sketch the exit ramp from its high-rate perch. No one seriously expects a cut on July 30—least of all with job creation still humming and Powell’s crew trying to front-run any tariff-induced price flare-ups. But make no mistake, the groundwork is being quietly laid. The easing cycle is still alive—it’s just biding its time, waiting for the smoke to clear.

Right now, Powell’s not blinking. Not with the labour market still holding its posture and the ghost of 2022’s inflation misread still haunting the Eccles Building.

Tariff effects are lagging indicators—we won’t get the real inflation signal until July, through September, when tariffs start hitting CPI prints. That’s where the heat could show: 0.4s, maybe 0.5s, MoM. And if that fire crackles, Powell will want to look calm and deliberate, not reactive and panicked.

So this meeting? Likely a policy placeholder. No rate move. QT on cruise control. But between the lines, I expect the narrative to shift—subtly, maybe—but toward acknowledging growing macro fragilities.

Under the hood, the jobs story isn’t as shiny as the headline suggests. Nearly 90% of all job gains in the last couple of years came from just three sectors: government, leisure & hospitality, and healthcare/education. Strip that away, and the real growth engines—tech, manufacturing, construction, professional services—are sputtering. And that’s before confidence and consumption start rolling over, which they already are. The American consumer is tightening the belt—wary of inflation stickiness, wealth volatility, and an earnings slowdown creeping in.

Meanwhile, I don't buy the idea that tariffs will unleash a new inflation cycle. This appears to be a one-time sticker shock. Energy prices are well behaved, wage growth is tame, and shelter inflation is poised to soften as the housing market resets. There’s no 2021-style wage-price spiral here—just some price re-marking and a bit of headline noise.

Markets are flirting with the idea of a September cut—pricing around 14-15bps. But that feels premature. Unless we see a significant decline in payrolls or a shockingly soft CPI, the Fed will likely hold its nerve. My base case is a December start, and it may even be a 50bp cut if the data weakens convincingly. That mirrors 2024’s playbook: wait, confirm, then move decisively.

That brings us to the dollar. It’s been a messy month—caught between Trump’s Fed rants, Powell’s stone face, and a bond market still trying to recalibrate. However, front-end yields have firmed up by month-end, and that should provide the greenback some support, especially if Powell resists the dovish bait dangled by Waller and Bowman during the press conference.

The broader FX picture is equally interesting. The greenback should stay underpinned next week, not just on the Fed’s posture, but because Friday’s combo punch—tariff deadline and July payrolls—could help delay the first rate cut. If the jobs number holds up, markets may push easing expectations further out. In that case, the dollar’s bounce has room to run—most likely against the usual low-yielding suspects.

I’m watching USD/JPY gleefully. With BoJ still cautiously anchored and Ishiba’s political fate hanging in the balance, this pair could stretch toward 150 if we get confirmation of resilience in the US labour market. USD/CHF also looks set to grind higher—toward 0.81—if risk appetite remains supported and carry trades stay en vogue.

EUR/USD could slide back toward 1.15–1.16 if EU data underwhelms and Powell stays steady. ( It should be a big buy down there)

Commodity currencies, on the other hand, may keep flexing—especially if trade deals take shape and the tariff anxiety fades. In that environment, the bid shifts from safety to growth, and that favours AUD, CAD, and select Asia EM FX.