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Friday’s US employment situation report revealed that growth in non-farm jobs slowed more than expected in July, adding 187,000 new payrolls (vs. 200,000 expected and largely falling in line with June’s downwardly revised 185,000 number [May’s release was revised lower to 281,000]). While this exhibits signs that the Fed’s policy tightening is beginning to have an effect, the US unemployment rate dipped to 3.5% (down from 3.6%), and wage growth came in hotter than expected at 4.4% on a YoY basis (MoM saw 0.4% wage growth versus 0.3% expected). So, while the headline number shows signs of slowing, wage growth might concern the Fed, but overall, recent data helps support the case for a soft landing. However, we have one more employment release ahead of the rate decision on 1 September.
Moving into the first full week of August, the dominant theme on the radar is July’s Consumer Price Inflation (CPI) release from the US on Thursday at 12:30 pm GMT. After easing to levels not seen since early 2021, economists estimate that YoY headline inflation will increase to 3.3% in the twelve months to July, up from 3.0% in June, with the core reading—excluding food and energy prices—anticipated to slow by 0.1 percentage point to 4.7% for the same period.
On a MoM basis, the headline and core readings are expected to increase by 0.2%. A lower-than-expected number will strengthen the likelihood of the Fed pausing at its next meeting and potentially weigh on the US dollar. At the same time, an upside surprise in this week’s inflation numbers could bolster the dollar and US yields, and pressure stocks lower as investors forecast an increase in the Fed Funds rate.
PPI (Producer Price Index) inflation is also scheduled on Friday at 12:30 pm GMT. YoY headline inflation will increase to 0.7% in the twelve months to July, up from 0.1% in June, according to economists’ forecasts, and the core reading—excluding food and energy prices—is anticipated to slow to 2.3%, down from 2.4% for the same period. Both MoM readings are expected to increase by 0.2%.
Another key release this week will be the UK’s preliminary growth data (first estimate) on Friday at 6:00 am GMT, expected to reveal no growth in Q2 (2023), according to median estimates from economists. As of writing, the event’s forecast range is between 0.2% and -0.1%.
G10 FX (5-Day Change):
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