The Euro moved just higher against the US Dollar this past week. That appears to be largely a result of general weakness in the US Dollar. The Euro-Area economic data is rather thin in the week ahead, so the focus on EUR will likely depend on external factors. In this case, it might make sense to look at what is going on in the United States. Although, it should be noted that the European Central Bank has been pushing out increasingly hawkish commentary as of late. But, as we will see, it still pales in comparison with the Fed.
Inflationary data this past week continued to show that the Fed has a problem to tackle. The Employment Cost Index, which is the central bank’s preferred wage gauge, surprised higher at 1.3% q/q in Q2 versus 1.2% seen. Meanwhile, the Fed’s ideal inflation gauge also beat estimates.
In the week ahead, all eyes will thus be on the next NFP report. For July, the economy is seen adding 250k positions, with unemployment sticking to 3.6%. A minor slowdown is seen in average hourly earnings, with a 4.9% y/y outcome expected from 5.1% prior. These are still healthy estimates and will likely contrast with the Fed pivot markets are expecting. As such, remain vigilant. Volatility can still return, opening the door for a US Dollar reversal, therefore pressuring the Euro.
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