July PCE front and centre for the dollar
The dollar remains focused on July PCE, durable goods and Q2 GDP data, with September rate expectations still finely balanced and Chair Warsh’s Jackson Hole debut on Friday in focus.
USD
The dollar began Tuesday on the front foot, with the DXY index extending above 99.0 as Monday's announcement of sweeping secondary sanctions on Iran continued to stoke haven demand. Those gains unwound through the day, however, with the index closing marginally lower near 98.9 on reports that Pakistan's army chief had carried a de-escalation proposal to Tehran, even as soft US data also weighed at the margin. Today brings July PCE at 13:30 BST, with core expected at 0.2% MoM and 3.3% YoY, alongside durable goods and updated Q2 GDP figures. With September hike-or-hold odds still finely balanced, an in-line print should keep focus squarely on Chair Warsh's Jackson Hole debut on Friday.
EUR
The euro softened to the mid-1.16s in Asia on Tuesday, a third consecutive session of declines, before grinding higher through London and New York to close modestly higher. August's Ifo survey beat expectations at 88.8, versus 87.0 anticipated, corroborating the resilience seen in last week's flash PMIs. Still, easing eurozone price pressure signals limit any hawkish read-through for the ECB and the euro. With the Strait of Hormuz disruption the euro's principal vulnerability this year, an overnight slide in crude on ceasefire reports is a welcome terms-of-trade tailwind for the bloc. Middle East developments aside, the eurozone docket is quiet today ahead of tomorrow's ECB minutes and any US data surprises.
GBP
The pound remains near the top of the G10 leaderboard; albeit, with a bare domestic calendar this week, sterling remains primarily sensitive to global risk sentiment. Granted, on that front, overnight news flow was constructive. Falling crude prices directly reduce the stagflationary risk that renewed Hormuz escalation would pose for the UK economy. Meanwhile, the hawkish surprise in August's flash PMIs, where stronger services activity coincided with renewed cost pressures, continues to underpin the case for Bank of England caution and, by extension, rate support for sterling. There is no UK data of note today once again, leaving cable to trade off this afternoon's US releases, with Friday's Jackson Hole keynote still the next probable directional catalyst.
CAD
The loonie remains a laggard again– an announcement of counter-tariffs on roughly $20bn of annual US exports, spanning steel, aluminium and dairy, effective September 8th, doing little to help the Canadian dollar. USDCAD finished Tuesday little changed in the mid-1.38s, while softer oil prices are adding to upward momentum this morning. Looking ahead, we see risks skewed toward further loonie weakness, with little prospect of meaningful negotiation before the US midterms. That said, the domestic calendar is empty today, leaving Friday's GDP release as the week's key test. Markets look for annualised growth around 3.4% in Q2, a rebound that would ordinarily flatter the loonie, but one we suspect will now be heavily discounted as a pre-tariff snapshot of the economy.