Daily Analysis 22/07/2025

• GBP/USD Price: The GBP/USD pair edges slightly lower in European trading on Tuesday after gaining over 0.5% in the prior session. The move reflects profit-taking amid cautious sentiment as markets await fresh catalysts.
• BoE Rate Cut: Money market futures indicate a 25 bps rate cut from the Bank of England on August 7, with an additional 50 bps of easing expected by year-end. These expectations weigh on the pound as the BoE faces a delicate balancing act between slowing growth and persistent inflation.
• UK Fiscal Concerns: The UK government's U-turn on welfare reforms has raised questions about its ability to control spending, putting fiscal credibility at risk. Economists now argue that tax increases may be necessary to meet fiscal rules and long-term growth objectives.
• PMI Data: Thursday's S&P PMI figures are forecast to show the mildest manufacturing contraction in six months, and the strongest services sector growth in nearly a year. A robust print may temporarily support sterling sentiment amid weak macro headwinds.
• Tariff Deadline: US Commerce Secretary Lutnick reaffirmed the August 1 deadline for new tariffs, confirming that tariff payments will commence on that date. While trade negotiations will continue, the firm stance could limit GBP upside through dollar resilience.

Closing statement: GBP/USD is consolidating after a strong rally, pressured by BoE easing expectations and UK fiscal uncertainties, while upcoming PMI data could offer a short-term boost. However, US tariff implementation on August 1 poses a broader risk for market sentiment and pound positioning.

• XAU/USD Price: Gold prices briefly climbed above the $3,400 mark per troy ounce on Monday, starting the week with a bullish momentum. The metal is benefitting from a flight to safety as global tensions and domestic US policy concerns increase.
• Fed Independence: Investor anxiety is rising over threats to the Federal Reserve’s independence, with US Treasury Secretary Bessent warning of the Fed's "mandate creep" into non-monetary areas. This has amplified concerns about future policy credibility, making gold a more attractive hedge.
• Fed Chair Powell: Republican lawmaker Anna Paulina Luna has referred Fed Chair Jerome Powell to the DOJ for alleged perjury, further escalating the political pressure on the US central bank. This adds another layer of institutional risk, keeping gold supported on uncertainty.
• Brussels Retaliation: The EU is preparing a €72 billion counter-tariff plan targeting key US exports like cars, bourbon, and digital services. The threat of a trade war escalation supports gold as a traditional hedge against geopolitical and economic shocks.
• Japan Talks: Japan’s lead negotiator is expected to meet with top US officials this week in hopes of preventing a steep 25% tariff on nearly all Japanese exports. While talks continue, markets remain cautious, with gold staying buoyed by the broader protectionist backdrop.

Closing statement: XAU/USD is gaining as a result of rising global trade tensions and domestic US institutional friction, particularly around the Fed. With uncertainty mounting across both political and economic spheres, gold retains strong upside potential as a safe-haven asset.

• Crude Oil Price: West Texas Intermediate (WTI) crude is trading lower near $65.30 in Tuesday's European session. The commodity is experiencing directionless momentum as markets weigh geopolitical developments and evolving trade dynamics.
• EU Sanctions: The EU has introduced a new sanctions package targeting Russian energy exports, with a price cap of $47.60 per barrel, roughly 15% below current market prices. While intended to curb Moscow’s oil revenue, enforcement remains a key uncertainty due to the difficulty in tracking inputs into refineries across member states.
• European Commission: Full implementation guidelines for the ban have not yet been disclosed by the European Commission. The lack of clarity on verification measures is likely to complicate compliance and affect market reaction in the short term.
• US Trade: The US has recently secured trade agreements with the UK, Vietnam, and Indonesia, as well as a limited pact with China. Washington’s confidence in a pending deal with India further supports its strategic trade positioning, which could reshape energy trade flows in the coming quarters.
• Political Pressure: US Treasury Secretary Bessent's remarks questioning the Fed’s institutional role, combined with President Trump’s renewed criticism of Chair Powell, are fueling speculation about central bank leadership changes. This adds to overall macro volatility, indirectly affecting crude sentiment through expectations of monetary policy shifts.

Closing statement: WTI crude remains under pressure as the market absorbs EU sanctions on Russian oil, lacking clarity on enforcement mechanisms. Meanwhile, global trade realignment and US domestic policy noise add to a complex backdrop, keeping prices range-bound with a bearish tilt in the near term.

• DAX Price: The DAX rose 0.10% on Monday, recovering part of Friday’s 0.33% loss, and beginning the week on a cautious but positive note. Sentiment remains fragile amid trade concerns and upcoming macroeconomic data.
• EU–US Trade: Investors are on edge following President Trump’s announcement of a 30% tariff on EU imports starting August 1. The move has triggered renewed uncertainty across European equities, with auto and industrial sectors particularly exposed.
• Index Stocks: Both Porsche AG and Porsche Automobil Holding SE are at risk of being removed from the DAX in the upcoming index reshuffle. Scout24 and GEA Group are considered potential entrants, signaling possible shifts in sectoral representation.
• German Government: In a strategic move, Berlin is considering investing in tank manufacturer KNDS, as German family shareholders plan a gradual exit. The company, a Franco-German joint venture, plays a key role in Europe’s defense industrial base, and the government's involvement could signal geopolitical prioritization.
• US Data: Markets are eyeing Thursday’s US jobless claims and the July business activity report, following last week's mixed inflation prints. The data could influence global sentiment and risk appetite, with possible spillover effects on German and European equities.

Closing statement: The DAX’s modest rise masks underlying volatility tied to transatlantic trade risks and domestic index reshuffling. With structural changes on the horizon and critical US data due this week, the index is likely to remain sensitive to both geopolitical and macroeconomic developments.