The US dollar is little changed from last week as investors prepare for quarter-end flows and a potential US Government shutdown. USD/JPY trades comfortably mid 148-148.50 while EUR/USD continues to edge lower, currently near 1.0650. GBP/USD is muted and sits just above last week’s six months low.
Data prints coming out of Europe this week such as, Euro-area headline and core inflation on Friday are likely to drop below 5% for the first time this year, easing pressure on the European Central Bank and cementing the idea that interest rates have finally peaked in the common area. Headline print (YoY) is estimated at 4.5%, dropping from the previous 5.2% while the Core gauge (YoY) is expected to drop to 4.8%, from the prior 5.3%. Energy and food and core goods contributions to the CPI should be the main drivers of a lower CPI number, as they fall off the picture compared to one year ago where we saw an increase of 4.3% in households’ energy bills for September 2022.
In the UK, Mortgage Approvals data this Friday is set to show that elevated interest rates are continuing to affect the market, with mortgage application expectations to stay below the 10-year average.
FOMC members are well on track for the process of disinflation without causing much damage to the labour market, according to the Summary of Economic Projections. Officials have stated that they are confident of this forecast, even as risks arise (oil prices surging due to supply constraints, UAW strikes and a potential Government shutdown). Jobless claims due on Thursday seem to support the official’s optimism, with consensus being at 215,000 jobless claims last week.
Fed’s optimism is still threatened by this week’s PCE Inflation report for August, due on Friday. Powell’s preferred “super core gauge” – core inflation and core services excluding housing is estimated to have grown at a 0.2% pace, vs. prior 0.2% and 0.5%, respectively)
Have a good week.