USD
The US dollar performed well against its major peers yesterday following stronger-than-expected economic data released on Thursday. Investors await July’s US Personal Consumption Expenditure (PCE) Price Index scheduled to be released later today in the US trading session. The US Gross Domestic Product Annualized grew at 3.0% in the second quarter of 2024, exceeding both the expected and previous growth rate of 2.8%. Additionally, Initial Jobless Claims showed that the number of people filing for unemployment benefits fell to 231,000 for the week ending 23 August 2024, down from the previous 233,000 and slightly below the expected 232,000. However, dovish remarks from the Federal Reserve could constrain further gains for the dollar. Atlanta Federal Reserve President Raphael Bostic, a prominent hawk on the FOMC, indicated on Thursday that it might be “time to move” on rate cuts due to further cooling inflation and a higher-than-expected unemployment rate. Although, Bostic wants to wait for confirmation from the upcoming monthly jobs report and two inflation reports before the Fed’s September meeting.
EUR
Eurostat will publish the preliminary estimate of the August Eurozone Harmonized Index of Consumer Prices (HICP) on Friday, and the anticipated outcome will back up the case for another European Central Bank (ECB) interest rate cut when policymakers meet in September. The ECB cut interest rates in June, trimming the three main benchmarks by 0.25% each, as concerns about economic progress overshadowed inflationary worries. Perhaps unsurprisingly, policymakers did not attribute their decision to growth-related issues but mentioned easing price pressures. The HICP was confirmed at 2.6% YoY in July and is foreseen to have grown by 2.2% in August, while the core annual index is expected to come in at 2.8%, down from the previous 2.9% increase. Ahead of the announcement, a positive surprise came from Germany. The country released the preliminary estimates of the August inflation data, which surprised by falling by more than anticipated. The Consumer Price Index (CPI) rose 1.9% YoY, below the 2.1% predicted, while the CPI was down 0.1% compared to the previous month. Interestingly, GBPEUR has been fairly volatile during the month of August but may well finish it close to the levels where it began.
GBP
Sterling has faced some pressure against the US Dollar in the later part of this week, particularly due to ongoing concerns about the UK’s economic outlook. The downside for Sterling may be limited, as traders anticipate that the Bank of England (BoE) will maintain higher interest rates for a longer period compared to the US Federal Reserve. The BoE reduced rates by 0.25% to 5% on 1 August 2024 and money markets are pricing in an additional 0.4% of cuts by the end of the year. In his speech at the Jackson Hole Symposium last week, BoE Governor Andrew Bailey indicated that the second-round effects of inflationary pressures would be less significant than anticipated. However, Bailey also advised against hastening additional interest rate cuts, according to Reuters.
CAD
The Canadian Dollar tested higher ground against the US dollar on Thursday, looking to put a stop to the midweek’s pullback. However, progress remains limited as jittery markets keep one foot in the US Dollar as key US inflation data due on Friday could set the tone for the Federal Reserve’s upcoming rate decision in September. Canada will release its latest round of Gross Domestic Product (GDP) figures on Friday, but a double-header of high impact US Personal Consumption Expenditure Price Index (PCE) inflation due at the same time will likely swamp out CAD flows as investors lean into bets that cooling inflation will keep the Fed on pace to deliver a first rate cut since 2019 on 18 September 2024.
This content was originally published by our partners at Monex Europe.