US jobs report key release this week
The euro and sterling finished Friday close to their highs of the week against the dollar and have advanced further this morning to trade at around $1.1720 and $1.3520 respectively, leaving EURGBP a touch firmer at £0.8670. Both rose by around 3 cents (or more than 2%) during August, their gains triggered by a much weaker than expected US jobs report at the start of the month and built upon after Fed Chair Powell signalled a potential resumption of interest rate cuts. This week’s key release is Friday’s US jobs report (for August), which will further shape market expectations regarding this month’s Fed monetary policy meeting (16th-17th) – the market is currently pricing in about a 70% change of a 25bps rate cut – and determine the direction for the dollar.
Expectations for a resumption of Fed rate cuts contributed to a rally in US bonds in August, with 2-year yields falling by almost 35bps and 10-year yields down around 15bps. Equivalent German yields were unchanged (2-year) to marginally higher (10-year) over this period, while UK bonds underperformed with 2-year and 10-year yields increasing by about 8bps and 15bps respectively (not helped by a ‘hawkish’ Bank of England rate cut in early August). In equity markets, the S&P 500 retreated from Thursday’s all-time high but closed out August up around 2%. European stocks underperformed the US during the month, gaining less than 1%.
Friday’s PCE inflation data in the US were in line with expectations. The headline inflation rate remained at 2.6% in July but core inflation nudged up to 2.9% from 2.8% in June. Goods inflation edged down to 0.5%, albeit this was still up from -0.3% as recently as March, while services inflation ticked up to 3.6% (from 3.5%).
Fed member Daly has indicated she would support a rate cut at this month’s meeting, saying “it will soon be time to recalibrate policy to better match our economy,” She notes that tariff-related price increases “will be a one off,” adding that, while “it will take time before we know that for certain…we can’t wait for perfect certainty without risking harm to the labor market.”
Looking to the week ahead, as mentioned Friday’s US jobs report is the key release – the consensus expects the economy to have added 75k jobs last month with unemployment ticking up to 4.3% – though there’s plenty of other US data as well, including the ISM manufacturing and services reports on Tuesday and Thursday respectively. We also get a flash reading of Euro area inflation for August tomorrow, with the consensus expecting headline inflation to have picked up to 2.1% last month from 2% in July.