Weekly macro outlook: Tariff shockwaves, diverging central bank paths, and strategic opportunity

As markets enter the second week of August, traders are grappling with an intensifying mix of trade tensions, central bank divergence, and early signs of economic deceleration. Last week’s Trump tariff barrage sent ripple effects across global equity, FX, and commodity markets, while investors continue recalibrating expectations for the Federal Reserve, Bank of England, and Bank of Japan.

This week’s positioning will reflect heightened geopolitical risk, fragmentation in monetary policy, and key data releases from the U.S., U.K., Europe, and Asia.

Global macro and sentiment themes

1. Trump’s “Liberation Day” tariff wave reshapes global trade

The US has implemented 25%–39% tariffs on countries including Canada, India, and Switzerland. Switzerland, with a 39% hit, braces for steep equity declines when markets reopen post-holiday. India’s 25% tariff coincides with domestic calls for self-reliance as Prime Minister Modi renews “Make in India” urgency. These tariffs not only impact bilateral trade but reshape supply chains, profit margins, and investor sentiment globally.

2. Central bank divergence widens

While the Fed held rates steady and acknowledged sticky inflation, it signaled no immediate plans to ease. In contrast, the Bank of England is expected to lower rates to 4%, prioritizing growth over inflation containment. The BOJ, while still dovish overall, has displayed cracks within its board, adding nuance to the long-standing yen weakness narrative. These divergences create opportunities and volatility in currency and rate markets.

3. Growth risk rising amid weak PMI and trade data

Recent global PMI prints have been dismal. ISM Manufacturing posted its worst contraction in nine months, and services data across Europe and Asia suggest demand softening after aggressive inventory stockpiling in Q1 and Q2. The anticipated pullback in exports due to tariffs and softer global orders puts Q3 growth trajectories in question.

Asset-by-asset outlook

US30 (Dow Jones Industrial Average)

The Dow is particularly sensitive to global trade frictions given its heavy weighting in industrials and exporters. With US-imposed tariffs directly impacting companies like Boeing, Caterpillar, and 3M, the earnings outlook continues to deteriorate. Last week’s disappointing non-farm payrolls report (73K) adds pressure, further dampening risk sentiment. Fed policy remains restrictive, which limits upside, even as market participants look for a policy pivot. Safe-haven rotation and equity de-risking are key themes this week.

GBP/USD

Sterling remains under pressure ahead of the Bank of England’s policy decision. Markets widely expect a 25bps rate cut, as the central bank prioritizes growth following weak GDP and labor data. Despite hot inflation, BOE Governor Bailey has maintained that price pressures are transitory. With real yields slipping and investor confidence low, GBP remains vulnerable, especially against USD and JPY.

EUR/USD

The euro faces continued drag from anemic growth across the bloc. Eurozone Q2 GDP registered a paltry 0.1%, and upcoming industrial output data may prompt downward revisions. ECB officials are signaling a wait-and-see stance, offering little policy support or forward guidance. The euro’s path remains tethered to global risk appetite and U.S. data surprises, lacking intrinsic catalysts of its own.

GBP/JPY

The cross remains under pressure as the Bank of England turns dovish while the Bank of Japan signals a cautious, yet growing awareness of yen depreciation risks. GBP’s weakening macro backdrop and Japan’s potential policy normalization could drive real yield spreads tighter. With no near-term relief for U.K. growth or inflation woes, the fundamental tone favors yen resilience over the pound.

USD/JPY

Dollar-yen continues to hover near intervention-sensitive levels as the Fed's pause and BOJ’s mixed rhetoric collide. While rate differentials still favor the dollar, cracks are emerging in yen bearishness as Japan’s institutional flows begin hedging foreign asset exposure. Verbal intervention risk remains elevated above 149–150, particularly if U.S. yields spike or geopolitical stress rises further.

XAU/USD (Gold)

Gold is stuck between higher real yields and safe-haven demand. On one hand, a stronger U.S. dollar and elevated Treasury yields typically weigh on gold prices. On the other, escalating trade tensions, market volatility, and emerging market central bank accumulation continue to offer fundamental support. Gold may find a bullish bid if data confirms a Fed policy mistake or if global risk appetite deteriorates further.