Week Ahead – U.S.-China Trade Talks to Shape Investor Risk Appetite

Weekly Market Outlook (August 4th – August 8th)

The U.S. Dollar experienced a volatile week, initially rebounding strongly following the Federal Reserve’s decision to keep interest rates unchanged and avoid offering clear guidance on potential September cuts. This cautious tone prompted a repricing in market expectations, with investors scaling back bets on imminent policy easing.

However, sentiment quickly shifted following a sharply weaker-than-expected U.S. jobs report. July’s Non-Farm Payrolls data revealed only 73,000 jobs added, while prior months saw major downward revisions—May and June were revised down to 19,000 and 14,000 jobs, respectively. The disappointing data weighed heavily on the dollar, erasing much of its earlier gains and reviving speculation about a possible Fed pivot later this year.

In contrast, the Japanese Yen saw notable strength, driven by both safe-haven flows and renewed speculation over a possible rate hike from the Bank of Japan. This followed comments from BoJ officials suggesting that the central bank may be nearing its next policy move.

Week Ahead – U.S.-China Trade Talks to Shape Investor Risk Appetite

With markets now repricing and remain mixed on Federal Reserve’s policy outlook and increasing expectations for potential tightening by the Bank of Japan, both the U.S. Dollar and Japanese Yen are likely to remain in focus this week. Investors will closely monitor key economic data—including inflation, labor figures, and overall economic activity—for further direction.

On another front, the outcome of the U.S.-China trade talks will be a major driver of sentiment. Following the optimism from recent trade agreements with Japan and the EU, markets are now watching to see whether similar progress can be made with China. However, caution is warranted—negotiations with China may prove more complex, and the tone may not be as cooperative.

Any surprise developments in the trade discussions could trigger heightened market volatility, particularly in global equity markets, which have recently been performing strongly on the back of improved risk appetite.

Key Events & Economic Data, Why It Matters?

On the economic calendar front, the week is rather lighter, major focus would be on the upcoming central bank decision—Bank of England—on Thursday. Meanwhile we are also expecting the BoJ monetary policy meeting minutes on Tuesday, which give us more clues on BoJ policy path.

1. Bank of Japan Meeting Minutes – 5th August

While the BoJ left interest rates unchanged in July, Governor Ueda struck a notably optimistic tone, hinting that a rate hike could be on the table in the next meeting. The upcoming meeting minutes will provide deeper insight into internal discussions among policymakers—particularly whether there was broad support for tightening and how officials are assessing inflation trends.

Any hawkish tilt in the minutes could strengthen expectations for a hike and support further upside in the Yen

2. Bank of England Rate Decision – 7th August

The BoE is widely expected to hold rates steady, as inflation continues to show signs of cooling and UK growth remains sluggish. However, policymakers remain divided on the timing of future rate cuts. Markets will be closely watching the vote split and the accompanying Monetary Policy Report for updated forecasts and risk assessments.

Any dovish shift in tone or downward revisions in inflation/growth outlook could pressure the British Pound and reinforce expectations that the BoE may start easing policy later this year.

3. US ISM Service PMI – 5th August

As the services sector accounts for the lion’s share of US economic output, this PMI reading offers a timely gauge of expansion or contraction; a print above 50 suggests resilient consumer and business demand that can reinforce Fed-hawkish sentiment and support the dollar, while a sub-50 figure would heighten fears of a growth slowdown.

Key Takeaway for the Week

Investor sentiment remains cautiously optimistic as markets absorb last week’s rebound in the U.S. Dollar and rising expectations of a potential rate hike from the Bank of Japan. This week, the spotlight shifts to whether this positive momentum can be sustained, especially with U.S.-China trade talks moving to the forefront.

Central bank signals will remain key in guiding market direction. The Bank of England’s upcoming policy decision may influence the British Pound depending on any change in tone, while the Bank of Japan’s meeting minutes could offer further insight into how close policymakers are to tightening.

Although the economic calendar is relatively light, markets are likely to begin shaping a clearer directional trend as traders assess the evolving macro landscape.