USD
The dollar starts the week in a quiet fashion after a very volatile week which saw it break out of recent ranges against its main counterparts, notably the EUR and JPY. With a busy calendar slated for this week for US releases, the market will nevertheless be very focused on the CPI release on Thursday. While there are growing signs that the US economy is slowing, recession is far from imminent. We continue to look for three Fed rate cuts this year. While markets began to align with this view as the week progressed, swap-implied pricing for Fed rate cuts continues to look overly aggressive, suggesting room for the dollar to retrace higher next week. On this point, a US CPI print could help give markets a further nudge. We expect to see core inflation rise marginally to 0.2% MoM, supporting our call for a 25bp September rate cut. Outside of the CPI data, we will also get the latest readings for producer prices, retail sales and industrial production.
EUR
The common currency starts the week on the front foot after a topsy turvy week last week, where EURUSD briefly touched the psychologically important 1.1000 level, before quickly retracing into a tight range at the 1.09 handle. With a very sparse headline release schedule for the Eurozone this week, coupled with ‘summer trading’, we expect the EUR to trade in response to data releases elsewhere, notably from the US. However, the second reading of GDP will be of interest to confirm a quarterly expansion of 0.3% in the Eurozone. Employment data is expected to show a continued move higher, rising by 0.2% quarter on quarter.
GBP
Unlike its two main counterparts, GBP will be subject to a very busy data calendar this week. We will get an update on wages, inflation, GDP, and retail sales throughout the week. While today will be quiet on the data front, tomorrow will start us off on wage data with average weekly earnings growth expected to drop from 5.7% to 4.6% in the 3M/YoY measure. However, excluding bonuses, this should be a little less severe with a drop from 5.7% to 5.4%, but still a move in the right direction as far as the BoE is concerned. Unemployment is expected to tick up 0.1% to 4.5%, matching the Bank’s estimate of a neutral labour market. While labour market indicators continue to move into better balance, Wednesday should see inflation rise from 2% in June to 2.3% in July, as favourable energy base effects that weighed on inflation in Q2 begin to unwind somewhat. Following on from the 0.7% GDP growth recorded on Q1, we expect a print at 0.6% this time around which still would put the UK at the head of the G10 pack when it comes to economic growth mid-way through 2024. Friday’s retail sales data should also support the strong momentum with sales rising 0.8% month on month and 1.4% year on year.
