The dollar firms on better data ahead of Jackson Hole

USD

The dollar topped the G10 leaderboard yesterday after a US data deluge that exceeded expectations. Headline PCE rose to 3.7% YoY, above the 3.6% predicted, with core steady at 3.3%, while the second estimate of Q2 GDP confirmed growth at 1.5% annualised, but with consumer spending revised up to 3.4% and business investment growth of 8.5% pointing to firmer underlying momentum. Combined with haven demand linked to Washington's "Operation Economic Outcast", the DXY stands above 99 this morning as trading gets underway. Today brings jobless claims as the Jackson Hole symposium opens, but the main event remains Chair Warsh's keynote tomorrow. Even with Fed credibility on trial, we remain sceptical he will abandon his aversion to explicit guidance, leaving two-way risk for the dollar, albeit with a skew to the downside.

EUR

The euro slipped around 0.2% against the dollar yesterday, though losses were ultimately modest. Hawkish commentary from Executive Board member Schnabel, saying rates must rise further given persistent inflation and a stronger eurozone economy, lent the single currency support through European hours before firm US data took over. Today's focus is the account of the ECB's July meeting, due at 12:30 BST, where we will be watching how broad the Governing Council's support is for further tightening beyond September. French and Spanish flash inflation prints tomorrow are the week's remaining eurozone test. We expect the euro to remain rangebound around 1.16-1.17 ahead of Warsh's speech.

GBP

Sterling underperformed yesterday, with cable falling to test 1.36 while GBPEUR slipped to the mid-1.16s. Domestically, a dire CBI survey, which collapsed to -48 against expectations of -21, signalled a steep deterioration in retail conditions. Set against better news from the US and eurozone, it is unsurprising to see the pound weaken. Still, given the fast-approaching autumn budget and some alarming Russia-related speculation, we see plenty of scope for further losses. For the rest of the week, the pound remains hostage to external drivers: geopolitical headlines, crude, and above all tomorrow's Jackson Hole keynote. A hawkish Warsh that extends the dollar rally would likely see cable test lower towards 1.35.

CAD

The loonie slipped again on Wednesday, closing out near 1.39. Firmer crude helped stem the pace of depreciation, but the fundamental picture remains challenging. 50% US tariffs on Canadian vehicles, steel and agricultural goods are now in effect, Ottawa's retaliation on $20bn of US goods lands on September 8th, and Prime Minister Carney's "at war" rhetoric suggests little near-term prospect of talks resuming. Today's calendar is quiet, leaving oil and the pre-Jackson Hole tone in charge before tomorrow's Q2 GDP release, where consensus looks for an annualised rebound of around 3.4% after three negative quarters. We continue to see the risks skewed towards further loonie depreciation, with 1.39 and then 1.40 as the obvious topside targets.

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