It’s all go with the USD Facing Inflation Figures ahead of Tomorrow’s Nonfarm Payrolls

Bet against the Dollar at your peril. It’s not the first time we’ve said it and it won’t be the last, with the Dollar’s gains on Wednesday coming off the back of a far stronger than previously estimated 2^nd quarter growth and a surge in nonfarm payrolls, according to the August ADP figures.

It was just a day ago when the Dollar Spot Index was looking at falling towards sub-90 levels, but with the U.S President delivering a less threatening response to the North Korean missile test, there was more good news from the Oval Office, as talks of tax reforms intensified on Tuesday.

It remains to be seen how much support there is for tax reforms from within the Republican Party, but with key members of the administration including the Speaker of the House Paul Ryan and, more recently, the National Economic Council Director Cohn, supporting tax reforms before the year is out, sentiment towards the Dollar and hopes of Trump’s growth policy agenda finally materializing could see the Dollar claw back this year’s losses, though much will hinge on stats through the coming weeks and any shift in sentiment towards FED monetary policy.

While Tuesday’s data out of the U.S ticked the box, FOMC members have been clear on the need to see inflation making a move towards the 2% objective, which raises the stakes this afternoon, with July’s Core PCE Price Index figures scheduled for release. This is the FED’s preferred inflation measure and if forecasts are accurate, year-on-year inflation is expected to ease to 1.4%, which will certainly be Dollar negative and reinforce the FOMC’s dovish outlook on rates through to the end of the year.

FOMC member commentary has been on the quieter side since the Yellen speech in Jackson Hole and, while there will be plenty of focus on tomorrow’s nonfarm payroll and wage growth numbers, soft inflation figures today could ultimately devalue any positive nonfarm payroll figures and to add to the current monetary policy uncertainty, the question will be whether wage growth can ease the blow of any soft inflation numbers today.

Other stats out of the U.S include the weekly jobless claims figures, July personal spending, pending home sales numbers and Chicago’s August PMI, though we will expect the numbers to be secondary today, barring anything particularly negative.

At the time of the report, the Dollar Spot Index was up 0.15% at 93.022, with direction through to the close dependent upon today’s data.

While focus will now be largely on the Dollar, as the EUR takes a pause, prelim August inflation numbers out of the Eurozone could reignite the rally that saw the EUR hit $1.2 levels at the start of the week, though core inflation will need to be upbeat to draw attention ahead of the U.S stats.

The Dollar rally, continuing through the Asian session, has left the EUR down 0.09% at $1.18728 at the time of the report, with the rally off the back of the Jackson Hole speeches at risk, as inflation data from both the Eurozone and the U.S roll out through the day.

German retail sales figures for July released earlier, were worse than had been forecasted, with sales falling by 1.2%, contributing to the EUR’s demise going into the European session.

Sparing a thought for the Pound, it’s another quiet day on the economic calendar, though with MPC member Saunders scheduled to speak shortly, any surprise hawkish commentary could see the Pound find some interest, having spent much of the week on the side lines, with stats this week being limited to tomorrow’s August manufacturing PMI.

Michael Saunders has been one of the dissenters this year and, while the markets will expect Saunders to stand his ground, any shift in sentiment to the more dovish side could weigh heavily on the Pound, economic data out of the UK having been best described as mixed of late.

At the time of the report, the Pound was down 0.05% at $1.2918, with direction ultimately hinged on events and data from across the Pond.