Dollar slips as Trump’s BLS pick suggests pausing Payroll data over accuracy concerns

Markets

Monthly headline and core US CPI inflation printed bang in line with expectations at respectively +0.2% M/M and +0.3% M/M yesterday. Annual reading showed a stabilization on the overall level (2.7% Y/Y) and an increase from 2.9% Y/Y to 3.1% Y/Y for the core gauge (matching highest level since January 2025). More importantly from a market point of view: the publication lacked feared evidence of tariff inflation. Core goods prices excluding new vehicles and used cars and trucks rose by 0.22% M/M, less than half the 0.55% M/M pace in June (highest since early 2022). With two out of “three critical Summer CPI reports” (dixit Fed Chair Powell) out of the way, markets become more confident that the Fed will pull the policy normalization card when it meets next in September. Especially as activity and labour market data point to growing downside risks to the Fed’s maximum employment mandate. A 25 bps rate cut is now fully discounted. If activity data continue to disappoint in coming weeks (eg retail sales on Friday), we err on the side of money markets starting to contemplate the possibility of the Fed pulling a 50 bps rate cut like they did in September of last year. The option was yesterday floated by US Treasury Secretary Bessent as well. The US yield curve steepened yesterday. Short-term yields lost up to 3.8 bps (2-yr) while the very long end of the curve gained 2.6 bps. European and UK yield curves steepened as well, in bearish fashion and without specific trigger. The move started somewhat after the US CPI release. German yields rose by 0.3 bps (2-yr) to 7.3 bs (30-yr) with the German 30-yr yield taking out technical resistance (2023 & 2025 highs at 3.26%) to close at the highest level since 2011 (3.3%). UK yields added 2.2 bps (2-yr) to 7.5 bps (30-yr) with the very long end of the curve (5.47%) closing in on 5.6% resistance. We keep a close eye on this move as it fits in our medium term bearish view on bonds because of the return of term premia. In FX space, the dollar lost out against the euro. EUR/USD spiked from 1.16 to 1.1650 on the CPI-release but suffered follow-up losses towards the high 1.16-area. The greenback(‘s credibility) got further eroded by Trump’s suggestion that he is weighing a lawsuit against Fed Chair Powell over the renovation of the central bank’s headquarters. The latter is a judicial route Trump is exploring to get rid off Powell. The dollar faced more pressure after Trump’s pick as new commissioner for the Bureau of Labour Statistics floated the idea of pausing the monthly payrolls releases amid accuracy concerns. Until it is corrected, he suggested publishing more accurate though less timely quarterly numbers. US stock markets extended their record races with gains of over 1% on the prospect of a less restrictive Fed policy.

Risk sentiment remains positive in Asia this morning. Japanese bonds underperform after a weak 5-yr government bond auction. Today’s empty eco calendar suggests markets will stick to yesterday’s themes (weaker dollar, steeper curves). Tomorrow and on Friday, more US eco data will help shape Fed expectations with PPI inflation and weekly jobless claims tomorrow and the empire manufacturing survey, retail sales and the University of Michigan consumer confidence survey (including inflation expectations measures) on Friday.

News and views

OPEC yesterday raised next year’s oil demand growth forecast from 1.3 mb/d to 1.4 mb/d. This year’s expectation was unaltered at 1.3 mb/d (y/y). The revision comes on the back of supportive economic activities. OPEC sees global economic growth of 3% this year and 3.1% in 2026. Some upward revisions were made for the US (1.8%-2.1%), the eurozone (1.2%-1.2%) and China (4.8%-4.5%). Oil supply forecasts outside the Organization of the Petroleum Exporting Countries were downwardly revised from for 2026 from 0.7 mb/d to 0.6 mb/d while this year’s forecast remained steady at 0.8 mb/d. Data from yesterday’s monthly oil market monitor thus suggest a tighter market next year with rapidly depleting oil inventories around the world (1.2 mb/d) unless OPEC continues scaling up previously halted production. We must add that OPEC forecasts of late have been a lot more bullish than other industry prognosis made for example the International Energy Agency.

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