The euro is consolidating around the 1.10 level against the greenback ahead of Eurozone CPI later today. The yen weakened 0.4% as the Bank of Japan announced an unexpected bond-purchase program to contain higher yields after last week’s policy announcement drove the benchmark 10-year debt to a 9-year high. USD/JPY rises towards 142 and GBP/USD trades mid 1.28-129 ahead of a busy week in the UK. The Bloomberg Dollar Index is higher this morning but still expected to end the month with a 1.2% loss MoM.
In the UK, the Bank of England takes center stage this week as it faces another “Knife-edge” situation where there is a clear risk of another 50-basis point surprise vs. the estimated 25-basis point on Thursday. A quarter point increase is in line with the current downward trajectory of both Headline and Core inflation, but there are drivers of these price pressures that have proved resilient in the past, indicating a clear risk of the BOE following the 50—bps June surprise into the August meeting. Markets are widely expecting a 25-bps rate hike and have priced in a 40% chance of a half-point increase.
In the Euro-area, we’re expecting GDP and CPI data today. Growth data for the second quarter is expected to show that the region grew slightly after stagnating at the beginning of the year (Est.0.2% vs. prior -0.1%). Inflation numbers likely fell in July, but the core gauge is not expected to fall substantially in July and August (CPI YoY – Est. 5.3% vs. prior 5.5%; CPI Core YoY – Est. 5.4% vs. prior 5.5%).
In the US, recent data is moving towards a soft- landing narrative and last week’s quicker-than-expected deceleration of the Employment Cost Index (Fed’s preferred wage gauge) adds evidence that the disinflation in June’s CPI report was not just simple luck .Although Inflation data for the month of June was soft, activity data kept surprising to the upside but this week we’re expecting fresh new data that support a soft landing view – Jobs data is expected to show consistent hiring (Non-Farm Payrolls, Fri.- Es.t 200k vs. prior 209k) and ISM Surveys will show activity is increasing (ISM Manufacturing , Tue. – Est. 46.9 vs. prior 46.0; ISM Services, Thur. – Est. 53.0 vs. prior 53.9).