Jobless Claims Fall, But Markets Eye Fed Moves Amid Mixed Economic Data

Momentum remains strong

It has been a quiet week in the UK economic calendar, but weak Eurozone economic indicators pushed GBP/EUR to test the €1.2019 level earlier this week. The pair could approach the €1.2048 level if there are no significant inflation surprises in the Eurozone.

The EUR:GBP swap rate differential collapsed as markets increased bets the Eurozone’s grim outlook will force the ECB into larger cuts than the BoE, and is now at -155bp, the widest since December 2023. That should keep some pressure on the pair in the near term which should be Sterling positive.?

In GBP/USD, the recent rise above $1.3400 can be attributed to the policy rate differential, though future movements could depend on expectations for a potential 50bp Fed cut.

No Major Data

ECB repricing confronts inflation challenge

The first September CPI prints from the Eurozone will be released today, with French and Spanish inflation projected to slow to 1.6% and 1.9%, respectively, while Spain's core measure is expected to rise from 2.7% to 2.8%.

German inflation data will be published on Monday, followed by Eurozone-wide figures on Tuesday. Inflation may influence European Central Bank rate expectations, as recent statements from Governing Council members indicated resistance to easing despite economic challenges.

EUR/USD gained support yesterday, with potential for another break above $1.1200 ahead of next week's US payroll data.

No Major Data?

Core PCE unlikely to impact markets

US initial jobless claims came in lower than expected at 218k versus the forecasted 223k, while continuing claims rose to 1.834 million. Durable goods orders exceeded expectations, and the anticipated revision of 2Q GDP from 3.0% to 2.9% did not occur.

Market pricing for year-end Federal Reserve rates increased slightly over the past few sessions, and the Dollar declined following some positioning adjustments. Markets are factoring in the possibility of a 50bp rate cut in one of the upcoming meetings.

August PCE data will be released today, with expectations for a core 0.2% month-on-month increase. The Fed's recent focus on employment suggests the markets may be less sensitive to inflation-related data. DXY is expected to remain in the 100.0-101.0 range, with potential for movement depending on upcoming jobs data.

Data:

1.30pm?Core PCE Price Index m/m