A key week of US economic data
The dollar gave up some ground on Friday following ‘as expected’ inflation data in the US though it still ended firmer on the week overall, gaining around half a cent and three-quarters of a cent against the euro and sterling respectively. The week ahead could prove consequential for the US currency and indeed for markets generally. There’s a raft of data on the US labour market due over the course of the week, culminating with the official jobs (payrolls) report on Friday, which will shape expectations for Fed rate cuts at next month’s monetary policy meeting and beyond and, in turn, determine the direction of the dollar. The euro and sterling are trading at around $1.1725 and $1.3445 respectively this morning, both a touch firmer than at Friday’s close, while EURGBP continues to hover above £0.87 having traded in a tight range of about £0.8710 to £0.8750 over the whole of last week.
The recent rise in US government bond yields stalled on Friday though they still ended 5-7bps higher on the week amid a paring back of expectations for Fed rate cuts. German yields were essentially flat on the week, while UK yields rose by 3-4bps. In equity markets, European and US stocks both ended the week on a positive note, gaining around 1% and 0.6% respectively on Friday.
Friday’s PCE inflation data in the US were very much as expected. Headline inflation nudged up to 2.7% in August from 2.6% in July, while core inflation (excluding energy and food prices) remained at 2.9%. Within core, goods inflation was unchanged at 1.1% though still up from 0% as recently as March reflecting the impact of higher tariffs; services ex housing inflation rose a touch to 3.4%, while housing inflation was at little lower at 3.9%.
Consumer spending in the US posted a solid increase in August, increasing by 0.4% for a second month in a row, with the annual increase picking up 2.7% from 2.5% in July. Spending rose by around 0.6% in three months to August versus the three months to May, so it is on track to make another sizeable positive contribution to GDP growth in Q3.
Looking to the week ahead, as mentioned, there are a number of date releases related to the US labour market due over the coming days, including job openings and layoffs tomorrow (Tuesday); the ADP private sector employment report on Wednesday; weekly jobless claims on Thursday; and the key payrolls report for September on Friday. Other US data due include the ISM manufacturing and services surveys on Wednesday and Friday respectively, while Euro area data due include the latest Economic Sentiment Indicator today and a flash inflation reading for September on Wednesday.