Dollar Rebounds as U.S. Inflation and ECB Rate Decision Take Focus
GBP
GBP/USD has fallen and is currently trading at 1.3102 (interbank), while GBP/EUR stands at 1.1844 (interbank).
Following the Bank of England’s (BoE) rate cut on 1 August, Governor Andrew Bailey noted that uncertainty remains around whether the persistent aspects of inflation are aligned with maintaining price growth at the bank's 2% target. He also raised concerns over whether the recent decline in inflationary pressures a result of is easing global shocks or if the UK economy may need a period of reduced activity.
This week, crucial data on employment, wage growth, and monthly GDP will take centre stage, with releases due tomorrow and Wednesday.
Average earnings for the three months to June rose by 4.5% year on year, the slowest growth since February 2022, signalling some relief for inflation as slower wage growth typically eases pressure on consumer prices. However, the UK added the most new jobs since November 2023 in the three months to June, indicating a still-tight labour market.
Moreover, monthly GDP for July is expected to rise by 0.2%, further highlighting the nation's economic trend.
No significant events are scheduled for today
EUR
EUR/USD has declined and is currently trading at 1.1063 (interbank).
Last week’s mixed Eurozone GDP figures reinforced expectations of a potential rate cut by the ECB. Growth in the second quarter was revised down from 0.3% to 0.2%, as inflation and high interest rates limited consumer spending and investment across the bloc.
All eyes will be on Thursday when the ECB is set to announce its latest monetary policy decision. Investors expect the ECB to reduce the deposit rate by 25 basis points to 3.50%, marking the second rate cut this year. Markets are also predicting an additional rate reduction in December, with forecasts for a total of three 25-basis-point cuts by the end of 2024, as Eurozone inflation fell to 2.2% in August from 2.6% in July, inching closer to the ECB's 2% target.
Attention will also be on Germany's final Consumer Price Index (CPI) data for August, a key indicator of the health of the Eurozone's largest economy.
Today’s Events (GMT+1):
17:00 - ECB McCaul Speaks
USD
The Dollar Index, which measures the U.S. dollar against a basket of six major currencies, has risen by 0.13% to 101.33.
The dollar regained some ground on Monday as investors remain uncertain about the scale of the Federal Reserve's expected rate cut this month.
Friday’s U.S. economic data added uncertainty to the likelihood of an aggressive Fed rate cut in September. Nonfarm Payrolls (NFP) rose by 142,000 in August, below the 160,000 forecast but up from July’s revised figure of 89,000. The Unemployment Rate also fell to 4.2%, as expected.
This week’s U.S. inflation data will be crucial in shaping expectations for the Fed’s interest rate decision. Markets will also be watching Friday’s Producer Price Index (PPI).
According to the CME FedWatch Tool, a 25-basis-point rate cut is fully priced in, while the chances of a 50-bps cut have decreased slightly to 29%.
No significant events are scheduled for today
CAD
USD/CAD is currently trading at 1.3567 (interbank), its weakest level since 23 August.
Last week, Canada’s economy added 22,100 jobs in August, but the hiring pace was insufficient to prevent the unemployment rate from rising to 6.6%, the highest level in seven years, excluding the pandemic years of 2020 and 2021.
The overnight index swaps market is now pricing in 63 basis points of easing across the Bank of Canada’s (BoC) final two meetings of the year, up from 59 basis points before the release of the jobs data.
In addition, oil prices opened slightly lower this week, with Brent crude trading at $72.08 and West Texas Intermediate (WTI) at $68.72 per barrel.
BoC Governor Tim Macklem is due to speak tomorrow, and the latest Wholesales data is set to be released on Friday.
No significant events are scheduled for today
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