Surveys to Provide Insights on the Soft Landing Theory

Impact on GBP:

UK PMIs expected to surpass expectations

The Bank of England’s broad trade-weighted Sterling index remains at its yearly highs. Markets are still waiting for a trigger that would lead to the BoE’s easing cycle being repriced more in line with the Federal Reserve’s – but no such trigger has materialised. This is unlikely to change today, with UK flash PMIs for September expected to continue outperforming those in the Eurozone. There is a sense that long Sterling positions are quite stretched. However, the latest CFTC data released last Friday, which covers activity up to last Tuesday (17 September), revealed a significant reduction in speculative Sterling longs.?

If weaker Eurozone PMIs remain the main driver for FX today, GBP/EUR could continue to trend lower, with the next target potentially around €1.1990. Unless there’s a surprise drop in the UK services PMI, this week’s UK calendar appears unlikely to challenge the market’s modest pricing of the BoE easing cycle.

Data: 9.30am?Flash Manufacturing PMI,?Flash Services PMI

Impact on EUR:

Manufacturing slump persists

Today's key Eurozone data will be the release of the September flash PMIs. Weak manufacturing sentiment is expected, with increasing speculation about layoffs in the sector, along with a potential decline in services confidence following the end of the August boost from the Paris Olympics. This is likely to push the composite Eurozone PMI indicator closer to the critical 50 threshold, signaling the potential for economic contraction.

French politics are also back in focus, as the new government is floating the idea of tax hikes on businesses and the wealthy to address the country's budget deficit, which is nearing 6% of GDP. This isn't a favourable backdrop for the Euro, making it unlikely that EUR/USD will break through the major resistance at $1.1200. Consolidation within the $1.1100-1.1200 range seems probable, with downside risks early this week.

Data: 8.15am French Flash Manufacturing PMI, French Flash Services PMI

8.30am German Flash Manufacturing PMI, German Flash Services PMI

Impact on USD:

Awaiting further data

The Dollar is trading with mixed performance and has not experienced sustained selling following last Wednesday's 50bp Federal Reserve rate cut. Friday's less-than-hawkish Bank of Japan meeting provided some short-term support for USD/JPY. Notably, USD/JPY has played a significant role in driving the overall Dollar trend over the past few months.

Looking ahead, the US economic calendar this week features a mix of activity and inflation data. Investors have so far embraced the soft landing narrative presented by Fed Chair Jerome Powell last week. Rather than being unsettled by the 50bp rate cut, equity markets have continued to rise. Key focus areas for investors include today's S&P US PMI readings, consumer confidence data (due Tuesday and Friday), and housing data (Wednesday). None of these indicators are expected to show a sharp decline.

On Friday, the August core PCE deflator is expected to come in at 0.2% month-on-month, with a possibility of 0.1% MoM. Interestingly, Federal Reserve Governor Christopher Waller, who supported last week's 50bp rate cut, cited inflation data coming in too low as his reason. If Friday's core PCE reading lands at 0.1%, it could trigger another dip in US rates and the Dollar.

Additionally, there will be several Fed speakers this week, including prepared remarks from Jerome Powell on Thursday. Markets currently price in 35bp of cuts for the November Fed meeting and another 30-32bp for December.?

Data: 2.45pm Flash Manufacturing PMI, Flash Services PMI

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