Dollar firmer ahead of US inflation data

The euro and sterling have fallen back from yesterday’s early morning highs of around $1.1780 and $1.3590 against the dollar to trade at about $1.17 and $1.3535 this morning, leaving EURGBP a little lower at just under £0.8650. This seems mostly related to market repositioning ahead of inflation data in the US – producer prices are due today and consumer prices tomorrow – with US bond yields also spiking higher before the numbers, while there’s the ECB meeting tomorrow as well. If the inflation data leaves market expectations for a Fed rate cut next week largely intact, then we may see the dollar lose ground again in the run-up to the rate announcement on Wednesday. The latest geopolitical developments – Israel’s attack on Hamas members in Qatar and Poland’s striking down of Russian drones – are not having any obvious impact on markets this morning.

US government bond yields spiked higher yesterday, reversing some of their recent sharp decline, with 2-year yields jumping by around 7bps and benchmark 10-year yields rising by about 5bps. German and UK yields saw smaller increases of 2-3bps across the curve. In equity markets, European and US stocks chalked up modest gains, of around 0.2% and 0.4% respectively, with the S&P 500 closing at yet another new all-time high.

Data revisions published by the US Bureau of Labour Statistics lowered the estimated pace of non-farm payrolls growth over the period April 2024 to March 2025 to around 71k a month, from 149k a month previously. The slower pace of jobs growth seems more consistent with the increase in the unemployment rate – from 3.9% to 4.2% – recorded over the same period.

The producer prices report (PPI) in the US is the only economic data release of note today. Headline and core output prices are both expected to have risen by 0.3% month-on-month in August, according to the consensus forecast, which would leave the annual increases largely unchanged from July at 3.3% and 2.8% respectively.