US Prices And Activity In The Spotlight

Impact on GBP:

Data should fuel easing expectations

It is an important week for UK data, where both employment and CPI data will be seen. UK economist James Smith is slightly dovish on both, looking for employment and services CPI to come in slightly below market expectations. General consensus is??the market is pricing the Bank of England rate cycle a little too conservatively for the rest of this year and would expect GBP/EUR to find some good support in the €1.1765 area.

When it comes to the BoE easing cycle, official speakers remain few and far between. There are no BoE speakers on the calendar over the next two weeks. At the Jackson Hole symposium, it looks like BoE representation may be former deputy governor Ben Broadbent.

No Major Data

Impact in EUR:

On the beach

The Eurozone data calendar is very quiet this week and there do not appear to be any European Central Bank speakers. This leaves the market to focus on the first revision to the second quarter eurozone GDP data. This is expected at 0.3% quarter-on-quarter.

EUR/USD has so far struggled to take advantage of narrower rate spreads. Last week there?had been calling for a higher EUR/USD as equity conditions settled down. There still is some?bias, but we will probably have to wait for tomorrow's US PPI release to get FX markets going again. $1.0900-$1.0950 seems the likely short-term range.

No Major?Data

Impact on USD

Data should fuel easing expectations

The focus this week will initially be on US prices. Will July PPI data (Tuesday) and CPI data (Wednesday) continue to provide confidence to the Fed that inflation is under control and allow the easing cycle to start in September? Most think the answer to that question is yes. And will US activity (July retail sales on Thursday, plus earnings reports from Home Depot and Walmart) also point to consumers finally feeling the strain of restrictive monetary policy? Consensus expects weak growth here too.

We also get to hear from a few more Fed?speakers as well this week, although the main Fed event remains the Jackson Hole Economic Symposium on 22-24 August. When it comes to Fed expectations, stability in equity markets has seen investors dial back the expected 50bp Fed cut on 18 September more towards a 25bp reduction. Short-dated US rates are clawing back their fall from last week, but may struggle to push much further ahead given the conviction over the Fed cutting rates in September.

Assuming no upside surprises in US inflation this week, our bias would be that the current DXY rally stalls ahead of the 103.50 area before it dips back again. However, investors may also be keeping one eye on Russia-Ukraine developments and whether they represent a new and more dangerous stage in the conflict. Notably, European gas prices are on the rise again and we know from the 2022 experience that any spike in fossil fuel prices is a Dollar positive.

No Major Data