USD
Markets had been hoping that Friday’s jobs numbers would settle the debate over whether 25 or 50bps of rate cuts would be delivered by the Fed later this month. Ultimately, the data failed to lean in either direction – not bad enough to nail on 50bps of easing, but not good enough to see it ruled out either. Granted, at 142k, August payrolls print marginally undershot expectations, but unemployment dropped from 4.3% to 4.2% while average weekly earnings rose by 0.4% MoM. That said, we do think it is telling that despite Friday’s data proving inconclusive, neither the FOMC’s Williams nor Walker, both of whom spoke post-release, appeared to lay the groundwork for 50bps of easing on September 18th. With this in mind, we continue to look for 25bops of easing this month, and at every meeting for the remainder of the year. If realised, this outcome would leave market expectations overly aggressive with almost 4.5 rate cuts priced by year-end. A modest paring of Fed easing expectations has seen the dollar start the week on the front foot, with the DXY index up 0.2% this morning. Even so, barring a notable surprise to the August CPI data due later this week, we suspect it will likely take a steer from Powell on September 18th to see a durable reassessment of the path for US rates and more significant gains for the greenback.
EUR
This week’s ECB meeting should hold few surprises for markets with a rate cut all but guaranteed. Instead, the focus is likely to be on the accompanying forecasts, and on any forward guidance offered by President Lagarde. The former should skew dovish, considering a recent raft of weak data prints. President Lagarde meanwhile will most probably play her cards close to her chest if recent history is anything to go by. With markets presently split between pricing two or three rate cuts before year-end, this set of events should steer in favour of the latter, an outcome that should help EURUSD to retrace below 1.10 if realised.
GBP
A busy week of data releases kicked off this morning with August’s REC report on jobs. In terms of key takeaways – the permanent placements index dropped from 47.7 to 44.6, while the permanent salaries reading also fell from 56.6 to 54.4. All told, while the MPC has been increasingly steering away from data point dependence, this is nevertheless a dovish set of readings for policymakers, especially considering ongoing data reliability issues over the official labour market statistics. It is also a set of print that leaves market pricing for Bank Rate looking overly hawkish to us. While we think the balance of risks for just about favours a hold in rates by the MPC this month, we also think the odds of a cut are much higher than the 20% currently implied by swaps. As such, this morning’s muted market reaction looks a little surprising. The pound is trading flat against the euro and only modestly softer against the dollar, with no notable reaction to this morning’s data. It also leaves sterling risks skewed to the downside ahead of payrolls and GDP data, both due later this week.
CAD
Friday saw the loonie finishing the week in retreat, helped by an inconclusive US jobs report and a concurrent set of domestic readings that broadly skewed dovish. Net employment rose by 22.1k, fractionally undershooting the 25.0k reading expected by markets. But more importantly, the composition of gains was soft, while unemployment rose 0.2pp to 6.6%, exceeding market expectations for a 6.5% print. This week should be a quieter one for the loonie, given that only a handful of third-tier data releases are set for publication in Canada. That should keep traders focused on data out of the US, a dynamic that we expect will see a slow and steady grind higher for USDCAD ahead of next week’s Fed meeting.
This content was originally published by our partners at Monex Europe.