FX Daily: Eurozone Inflation Impact on ECB Expectations and USD
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FX Daily: Eurozone inflation, round one
Spain and Germany will release inflation figures today, and market expectations for the ECB's September meeting may already be impacted. Eurozone numbers are out tomorrow. Meanwhile, ADP payrolls are out in the US after a soft batch of data hit the dollar yesterday, while AUD is shrugging off lower-than-expected CPI figures.
USD: ADP could be inaccurate, but may move the market
Two softer-than-expected data releases in the US yesterday prompted a sizeable correction in the USD 2-year swap rate yields, which fell from 4.94% to the 4.80% area. JOLTS job openings data fell to 8.8 million in July, meaning there were approximately 1.5 open positions for each unemployed worker – the lowest ratio since September 2021. The hiring rate declined marginally, but the layoff rate was unchanged. Consumer confidence figures also disappointed, with the Conference Board survey dropping from a revised 114 level in July to 106 in August. Other components of the survey also declined.
The rally in pro-cyclical currencies and the dollar’s weakness across the board was a confirmation of how US activity data – even if non tier-one releases – remain firmly in the driver's seat for global currency markets. Developments in China and in the commodity sphere, while important, clearly continue to play a secondary role.
Today, expect markets to focus on the ADP employment figures. These have not proven to be a very accurate estimator of the official payrolls recently but have often impacted rate expectations. The consensus is for a 195k print. Wholesale inventories and pending home sales for July, as well as the GDP and core PCE secondary release for the second quarter, are also on the calendar today.
The dollar is regaining some ground this morning after yesterday’s losses, but data will determine the direction of travel today. We had called for a weaker dollar at the start of this week and we’d like to see whether eurozone inflation data boost the chances of one last hike from the European Central Bank. With markets being more convinced of no more hikes by the Federal Reserve – barring a surprise in payrolls – a re-tightening in the EUR/USD short-term real rate gap could set the tone for a weaker dollar across the world.
DXY may continue its correction from the 104.00 highs and test 103.00 should eurozone inflation figures come in strong enough and US employment not surprise on the upside.
