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We expect a 0.4% month-on-month core CPI print in the US today, above the 0.3% consensus. That should offer the US dollar support, but we don’t think that will prompt markets to seriously price out a September cut, meaning we can see decent buying in the EUR/USD dips. Headlines on upcoming US-Russia-Ukraine talks also remain relevant for markets
USD: We Expect 0.4% MoM Core CPI
The US dollar has found some support ahead of today’s US CPI release. Some of this may reflect profit-taking in still relatively crowded USD shorts, as well as President Trump’s decision to extend the tariff pause on China by another 90 days. Also contributing could be Trump’s attempt to downplay expectations for Friday’s summit with Putin, calling it a “feel-out meeting” to gauge Russia’s demands, and adding “that’ll be the end” if no agreement is reached. Markets had possibly priced in a slightly more optimistic stance on a quicker resolution.
We’ll continue to monitor headlines into Friday – Trump speaks with Zelenskyy tomorrow – as FX remains somewhat sensitive to geopolitical developments. Still, as discussed yesterday, data should remain the primary driver for USD. We expect a 0.4% MoM core CPI print today, above the 0.3% consensus. That would push YoY core inflation from 2.9% to 3.1%, and headline from 2.7% to 2.9%.
Despite some positioning rebalancing ahead of the release, a hotter-than-expected print should still support the US dollar, as markets may revise down expectations for a September Fed cut to below 20bp. However, we think labour market data is more influential than inflation, given the consensus view that tariff-induced price shocks are transitory and last month’s large payroll revisions. So even a 0.4% MoM core print could still be consistent with a September cut – if accompanied by further labour market deterioration.
For that reason, our above-consensus inflation call doesn’t translate into expectations for a sustained USD rally. We see any support as short-lived. Also on today’s US calendar: the NFIB Small Business Optimism Index and July’s Federal budget data.
Elsewhere, the Reserve Bank of Australia cut rates by 25bp as widely expected. The AUD is slightly weaker, with markets interpreting the RBA’s downward revisions to inflation and growth as a dovish signal. However, Governor Michele Bullock kept forward guidance open-ended and data-dependent. Given already aggressive easing expectations, we remain constructive on AUD over the coming months.
EUR: Eyes on ZEW and Ukraine Headlines
This morning we’ll see an important gauge of the impact on eurozone sentiment of the US-EU deal in the German ZEW release for August. Consensus is for a deterioration in both the current situation (from -59.5 to -67) and the expectations gauge (from 52.7 to 39.5).
Remember that the ECB does incorporate activity surveys into its economic assessment, and should a ZEW fall be followed by drops in IFO and above all PMIs, some dovish dissent in the ECB may start to remerge.
But that is more a story for September given the lack of ECB communication in August and a still muted inflation backdrop. For now, the euro continues to be affected (albeit not in great magnitude) by the Russia-US headlines. We expect today’s US CPI to bring EUR/USD back below 1.16 with risks skewed to a test of the 1.150 support if the Putin-Trump summit yields few results on Friday.
GBP: Acceptable Jobs Numbers
The UK released July jobs data this morning. Payrolls fell by just 8k – best since January – and June was revised up to -26k (from -41k). This aligns with recent hiring surveys showing signs of recovery.
While the labour market is cooler than earlier this year and softer than in other major economies, there’s no clear signal yet for the Bank of England to accelerate rate cuts. As seen in August, the MPC remains relatively unfazed by jobs data. We’re still expecting a cut in November, but stronger payrolls or hotter inflation could delay further easing.
Sterling is trading on the strong side this morning as jobs figures were seen as slightly upbeat, and EUR/GBP may well test 0.860 in the coming days. Nevertheless, we expect a return to 0.870 later in the summer on the back of our BoE call.
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