Weekly Market Outlook (18 August– 22 August)

Global markets ended last week with rising expectations of further policy easing from the Federal Reserve. Softer U.S. data boosted the case for a September rate cut, with some talk of multiple cuts before year-end. However, the surprise upside in Producer Price Index (PPI) data briefly tempered those expectations. Even so, swap markets continue to price in a high probability of a September cut, though the outlook has moderated to just two cuts in 2025.

This dovish shift has lifted risk sentiment. The S&P 500 and Nasdaq reached fresh record highs, while global equities extended their rally. Optimism has also spilled over into alternative assets, with cryptocurrencies surging—Bitcoin hit a new all-time high.

For the U.S. Dollar, sentiment remains mixed. While Fed cut expectations have weighed on the greenback, the pullback in aggressive easing bets helped it recover some ground, leaving the dollar broadly indecisive for now.

Week Ahead – Fed Policy Shift: Start of the End of Carry Trades?

This week, markets will likely continue watching for fresh signals on a potential Federal Reserve policy shift to sustain the current momentum. Meanwhile, growing expectations of Fed rate cuts could narrow yield differentials, potentially triggering a reversal in popular carry trades.

The Japanese yen, long used as a funding currency, may benefit if investors unwind positions in higher-yielding assets. So, beside the continued optimism over the risk asset such as stock and cryptocurrency, the move in Japanese Yen could got into traders’ focus this week.

With the fed policy expectation continue to dominate this week, the market would now eyes for key data and event from the U.S., which is the jobless claims and the S&P Global PMI data that reflect the economic activity that could either reinforce or weaken the Fed cut expectation.

Key Events & Economic Data, Why It Matters?

Undoubtedly, U.S. key economic data and the latest FOMC meeting minutes—set for release on Thursday—will be the main highlights this week, offering further insight into the Federal Reserve’s policy outlook.

Beyond the U.S., several other high-impact events could also shape global market sentiment in the days ahead:

1. UK Consumer Price Index –20 August

The Bank of England recently delivered a “hawkish cut” despite weakening growth, due to persistently elevated inflation. If inflation data shows signs of softening, markets may start pricing in a dovish shift from the BoE, which could potentially weigh on the British Pound.

2. Reserve Bank of New Zealand Rate Decision – August 20

The RBNZ has kept the Official Cash Rate at 3.25% since July, after cumulative cuts totaling 225 basis points. The central bank remains cautious, signaling readiness to ease further if inflation continues to moderate and economic risks persist.

Any forward guidance or dovish signals about additional cuts could trigger NZD depreciation.

3. FOMC Meeting Minutes – 21 August

Markets are increasingly pricing in a September rate cut and possibly two or more cuts in 2025, contributing to U.S. Dollar weakness. Investors will scrutinize the minutes for clues on how committed the Fed is to further easing—potentially reinforcing or tempering current expectations.

4. Japan National Consumer Price Index – 22 August

The Bank of Japan has hinted that rate hikes could come sooner than expected if global trade tensions ease and economic data remains aligned with its outlook. This CPI release, a key inflation gauge for the BoJ, will play a crucial role in shaping market expectations for Japan’s next policy move.

Key Takeaway for the Week

Following a steady stretch in global markets, the week ahead could see a notable shift in momentum as traders brace for fresh cues on U.S. monetary policy. Rising expectations for Federal Reserve rate cuts are drawing attention to narrowing yield differentials, which could spur a reversal in popular carry trades and bring the Japanese yen back into focus.

While risk assets such as equities and cryptocurrencies may continue to benefit from the dovish tilt, currency markets could experience heightened volatility—especially if central bank outlook from the RBNZ, BoC, or BoE signals policy divergence.

Against this backdrop, positioning into mid-week data and central bank announcements will be crucial in navigating what could be a decisive turn for global capital flows and sentiment.