Busy week of economic data ahead
The dollar lost more ground last week, extending the decline triggered by the previous weeks’ softer than forecast US jobs data which saw the market ramp up expectations for Fed rate cuts over the remainder of this year. The euro gained around three quarters of a cent against the US currency over the course of the week, and is a touch firmer again this morning trading at around $1.1660. Sterling outperformed last week, supported by the Bank of England’s hawkish rate cut on Thursday, advancing by almost 2 cents against the dollar and rebounding by not far shy of 1p against the euro. It is trading at about $1.3460 and £0.8660 respectively this morning, ahead of some key UK economic data this week including labour market and GDP reports for Q2 tomorrow and Thursday respectively. It is also an important week for US data, which include CPI inflation for July tomorrow and retail sales (July) on Friday.
Fed rate cut expectations remained broadly intact last week, with the market pricing in a circa 50bps reduction by the end of the year, though US bond yields backed up somewhat following their very sharp post-jobs report decline the previous Friday. UK yields were a good bit higher, by almost 12bps in the 2-year area, with most of the increase occurring following the Bank of England’s rate cut as the market pared back the chances of another reduction by year-end (now at around 75% versus circa 100% previously), while German yields were marginally higher on the week.
Equity markets had a very solid week. The Nasdaq in the US gained almost 4%, closing on Friday at a new all-time high, while the S&P 500 advanced by around 2.5% to just shy of its all-time high. European stocks kept pace with their US counterparts, adding around 3.5% on the week.
Fed Governor Bowman, who dissented in favour of a 25bps rate cut at last month’s monetary policy meeting, says she believes 75bps worth of cuts will be appropriate over the remainder of this year, noting that underlying economic growth and jobs growth have both slowed sharply recently and that tariffs “will not present a persistent shock to inflation.”
It’s quiet today in terms of economic data, with little or nothing of note due, though as mentioned, markets will have plenty of important releases to digest over the rest of the week.