Gold prices edge lower; heading for weekly losses ahead of U.S.-Russia talks
US core inflation accelerated to 0.3% MoM in July, but markets don’t think that is enough to prevent a September Fed cut. That paves the way to more US Dollar weakness, although some caution may prevail ahead of Friday’s Trump-Putin meeting. The market is adjusting expectations, but the risk still seems asymmetrical for CEE currencies
USD: Stronger Bearish Case After CPI Report
Yesterday’s US CPI release turned out to be a dollar-negative event. Core inflation accelerating to 3.1% YoY and 0.33% MoM is far from ideal, but equally not alarming enough to overshadow the deterioration in the jobs market. So, the September Fed cut remains firmly priced in (23bp) along with another 35bp by year-end.
At this stage, the dollar has few bullish arguments to hold onto. Upcoming surveys might paint a better activity picture, but it’s all about the jobs market now: a substantial recovery in the dollar from these levels appears realistic only if jobs figures turn significantly stronger.
On the topic of jobs data, it was reported yesterday that the new chief of the Bureau of Labor Statistics, EJ Antoni, is considering switching from monthly to quarterly payroll reports during a methodology review period. It’s hard to gauge exactly how seriously markets are taking this threat: the reaction has been muted. We think the downside risks for the dollar are substantial should the BLS go ahead with the frequency change.
Today, there are no data releases to monitor in the US. The proximity to the Trump-Russia summit on Friday and recent reassessment of the chances of an imminent ceasefire mean the dollar may not fall much further for now.
EUR: ZEW Confirms Poor Trade Deal Reception
The ZEW surveys published yesterday confirmed the poor reception of the US-EU trade deal in the EU. The “expectations” gauge in Germany is back to 35, in the eurozone to 25, both the lowest since May.
However, markets aren’t giving the surveys too much weight, and pricing for the ECB December meeting has crept closer to -10bp from -15bp last week. We continue to see this pricing as too conservative and a potential vulnerability for the euro moving on. But that is unlikely to play out over the next couple of weeks and should be overshadowed by the Fed story.
EUR/USD’s bullish case is stronger after yesterday’s US inflation report. However, a break above might be delayed until after the Trump-Putin meeting on Friday.
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