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Key inflation figures fell back last week, amplifying the spotlight on policymakers.
Inflation reads from key economies pointed to easing price pressures across the western world last week. For currency markets, that means focus has shifted squarely onto central banks, as the Bank of England (BoE), European Central Bank (ECB) and Federal Reserve all plot their next moves.
Sterling had a strong start to last week but faded by Friday. Despite that, the pound climbed by over half a per cent against the euro on the week and GBP/USD is up by over 2% since the end of July. EUR/USD fell by over a cent on the week, but likewise from a position of strength.
The US core PCE price index — known to be the Federal Reserve’s preferred measure of inflation – held steady at 0.2% in July. Personal income and spending meanwhile grew by 0.3% and 0.5% month-on-month respectively, in line with market forecasts.
As expected, the eurozone confirmed that consumer price inflation had fallen from 2.6% in July to 2.2% in August. Italy’s headline figure fell to 1.1% last month, highlighting the balancing act facing the ECB as it looks to craft a cohesive monetary policy that suits all member states.
Slowing inflation helped boost the mood in wider markets. European stocks ended Friday on the rise, and it was a similar story in the US, which ended August on a notably happier note than it had begun.
Democratic nominee Kamala Harris gave the first major television interview of her campaign to broadcaster CNN last week. Harris stressed her first goal as president would be cutting costs for the middle class, although she was notably more evasive on policy specifics.
Here’s what to look out for this week…
A smatter of sector reads open up proceedings on Monday before ISM manufacturing arrives from the US tomorrow.
Wednesday brings the latest interest rate decision from the Bank of Canada and July’s JOLTs job openings report from its southern neighbour.
US ISM services PMI features on a rather quiet Thursday. Friday is much more frantic, with German balance of trade numbers, UK house price data and US unemployment metrics all landing.
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GBP: Come a long way
The pound can boast of multiple percentage point gains over the US dollar and the euro over the past few weeks. Some of that momentum has slipped away though, and more movements are to be expected as markets become busier again.
GBP/USD: the past year
EUR: Inflation victory?
The ECB won’t be counting its chickens yet, but recent inflation figures seem very encouraging. That’s good for the eurozone but could spell trouble for the euro if interest rates fall faster than in other nations.
GBP/EUR: the past year
USD: Closing in on Goldilocks
The American economy seems to be inching closer to a Goldilocks scenario in which inflation has fallen as growth remains stable. As we’ve seen before, economic data can spin that narrative on its head very quickly indeed.
EUR/USD: the past year
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