Advertisement
Advertisement

Week ahead: ECB Updates and PMIs Ahead

By:
Aaron Hill
Published: Jul 21, 2025, 08:19 GMT+00:00

Regarding the ECB’s rate announcement, it is widely expected that the ECB will leave all three key benchmark rates unchanged.

20 euros note. FX Empire

Where We Were

Tariff threats and ‘announcements’ from US President Donald Trump have taken a back seat in the financial markets. As of now, traders appear to have become numb to Trump’s chaotic back-and-forth trade policy approach.

What caught the market’s attention last week, however, was a rumour that Trump was drafting a letter to fire Federal Reserve (Fed) Chair Jerome Powell. Reports of Trump firing Powell triggered a brief, albeit direct ‘Sell America’ phase, only to be reversed after the President shortly denied this rumour an hour later. However, you may recall that Trump threw in a handful of caveats to his renunciation, adding that he does not ‘rule out anything’ and ‘thinks it’s highly unlikely unless he [Powell] has to leave for fraud’.

Trump’s personal ‘name-calling’ and ceaseless demands for lower rates are now daily conversation, and, let’s be frank, the belittlement from the President of the US is not a good look! Every time I read a Powell-infused statement from Trump, the classic English rock band in the 1970s comes to mind: ‘Should I stay or should I go’.

Nevertheless, it is my understanding that Trump does not have the legal grounds to give Powell the elbow unless there is cause such as neglect of duty. This is why I believe Trump’s team are looking into things such as possible fraud, which Powell has denied. Several analysts more familiar with the matter have stated that this fraud enquiry will unlikely lead to the removal of Powell.

This is not about fraud for Trump; it is all about Powell and the Fed not reducing rates and he is finding any way to oust the Fed Chair, and he is not being subtle about it. Should Trump remove Powell, this would trigger a huge lawsuit, which is something I am sure Trump does not want at this point. Additionally, and more importantly for the financial markets, firing Powell could throw into question the Fed’s independence.

The credibility of the Fed’s independence is important because it allows the central bank to make decisions based on economic data rather than political influence, fostering trust and predictability in the financial system. This independence helps the Fed manage inflation, stabilise financial systems during crises, and maintain consistent monetary policy, all of which are vital for investor confidence and market health. If this is put into question, expect the US dollar (USD), US Treasuries, and Stocks to take a sizeable hit and safe-haven demand to prop up Spot Gold (XAU/USD). You saw a glimpse of such a reaction last week after rumours of Trump preparing to fire Powell hit the wires.

We also have to bear in mind that Trump will likely announce the new Fed Chair soon, which may further muddy the waters for the markets and establish a ‘Shadow Fed Chair’, if you will. You will note that Powell’s tenure is not up until May of next year.

As I am sure you have heard, there are a number of names in the hat for the next Fed Chair. Aside from the ‘two Kevins’ – Kevin Hasset and Kevin Warsh, with the former a more likely selection, I believe – Fed Governor Christopher Waller is on the radar and continues to advocate for a July rate cut. There’s also US Treasury Secretary Scott Bessent’s name in the frame.

US Inflation Ticked Higher

June US CPI inflation (Consumer Price Index) numbers landed last week, and was a widely anticipated report. Headline year-on-year inflation rose by 2.7%, surpassing the market’s median estimate of 2.6% and was up from 2.4% in May. Excluding energy and food items, core inflation undershot the median expectation of 3.0%, reporting a 2.9% rise, which was up from 2.8% in May.

While we did see prices tick higher, particularly in some tariff-sensitive items, like furniture, toys, appliances, as well as apparel, there were also some price increases for domestic items, such as car rentals and beef. The point is that inflation increased in June, and many believe this could be just the beginning of subsequent rises in future months. This will likely be intensified should Trump impose the suggested tariffs on 1 August, and, much to Trump’s displeasure, likely lead the Fed to keep rates higher for longer.

I do not envisage the Fed taking any action at this month’s meeting. I think we could see a rate cut in September, and possibly another reduction in December, but this all ultimately depends on how the data performs and the impact that tariffs have had. Money markets are pricing in just shy of two rate cuts.

Where We Are: ECB Rate Announcement On Deck

The upcoming economic calendar is light, with this week’s focus largely directed to the July S&P Global flash manufacturing and services PMIs (Purchasing Managers Indexes) released on Thursday morning. These reports also make the airwaves a couple of hours ahead of the European Central Bank (ECB).

I will be closely watching the eurozone’s flash PMIs for signs of weakness. With that said, I am not expecting to see much evidence of tariff-related softness in the July data. According to Refinitiv, the market’s median estimate suggests all of the July PMIs increased. The Composite measure is expected to have risen to 50.8 (versus 50.5 previous), Services to 50.8 (versus 50.5), and Manufacturing to 49.8 (versus 49.5).

Regarding the ECB’s rate announcement, it is widely expected that the ECB will leave all three key benchmark rates unchanged. This would leave the Deposit Facility Rate at 2.0% and the Refinancing Rate at 2.15%, and is unlikely to do much to rattle the markets.

An unchanged decision should not raise too many eyebrows, as the bar for additional policy easing is high, as ECB board member Isabel Schnabel alluded to earlier this month. It is also worth noting that the Deposit Facility Rate has already been lowered by 200 basis points since the central bank initiated its easing cycle in mid-2024, and the ECB suggests that the central bank’s neutral rate is between 1.75% and 2.25%.

Consequently, the emphasis at this meeting will be on the accompanying forward guidance. While any clues that the central bank is nearing the end of its easing cycle would be welcomed information, and could provide a considerable tailwind for the euro (EUR), I am not holding my breath. Given the ongoing tariff uncertainty between the US and European Union, I believe little will be delivered until their trading relationship is clearer.

Versus the USD, the EUR has outperformed this year, up by more than 12%. However, on a month-to-date basis, the EUR/USD exchange rate is on track to snap a five-month winning streak, down 1.4%. Technically, the currency pair is in a reasonably solid bullish position, with dip-buyers potentially showing interest this week around support of US$1.1611, targeting resistance from US$1.1849 as the initial upside objective.

Additional Risk Events to Note This Week

Tuesday 22 July

US Fed Chair Powell scheduled to speak at 12:30 pm GMT

Fed Chair Powell is expected to deliver an opening speech at the ‘Integrated Review of the Capital Framework for Large Banks Conference’, in Washington DC.

Thursday 24 July

US weekly jobless claims for the week ending 19 July at 12:30 pm GMT

According to early estimates, US weekly unemployment claims are expected to rise to 228,000 filings, up from 221,000 in the week prior.

Friday 25 July

UK month-on-month retail sales data for June at 6:00 am GMT

As a key gauge of consumer spending, the June UK retail sales data will be closely watched, with expectations of a 1.2% gain following a 2.7% decline in May.

Written by FP Markets Chief Market Analyst Aaron Hill

DISCLAIMER:

The information contained in this material is intended for general advice only. It does not take into account your investment objectives, financial situation or particular needs. FP Markets has made every effort to ensure the accuracy of the information as at the date of publication. FP Markets does not give any warranty or representation as to the material. Examples included in this material are for illustrative purposes only. To the extent permitted by law, FP Markets and its employees shall not be liable for any loss or damage arising in any way (including by way of negligence) from or in connection with any information provided in or omitted from this material. Features of the FP Markets products including applicable fees and charges are outlined in the Product Disclosure Statements available from FP Markets website, www.fpmarkets.com and should be considered before deciding to deal in those products. Derivatives can be risky; losses can exceed your initial payment. FP Markets recommends that you seek independent advice. First Prudential Markets Pty Ltd trading as FP Markets ABN 16 112 600 281, Australian Financial Services License Number 286354.

About the Author

Aaron Hillcontributor

Aaron graduated from the Open University and pursued a career in teaching, though soon discovered a passion for trading, personal finance and writing.

Advertisement