“Now that Jackson hole is in the rear view mirror two events are coming quickly into focus. This first is this week’s release of the US labour market data which will bring fresh information about the post pandemic healing that is taking place across the jobs market. The second is next week’s ECB meeting. This should bring clarity as to whether or not it is too early for the ECB to start signalling an intention to start scaling back its asset purchase programme. Despite the release of stronger than expected Eurozone CPI data this morning at 3.0% y/y for August, we don’t expect the EUR to pick up much lasting support from the ECB next week. We continue to forecast a move lower in EUR/USD towards 1.16 on a 6 month.”
“Although US rates are still very low across the curve, the prospect of higher US rates is not good news for USD borrowers in emerging markets. For Asian markets in particular, the debate about Fed tightening has likely emphasized the economic impact dealt by the Delta variant in recent months. Figure 1 suggests that some of the USD’s recent better tone has been a function of safe haven demand. Given continued concerns about the impact of Covid in a number of countries around the world, combined with fears liked with slowing Chinese growth, we expect that apprehension about the outlook for many emerging markets will be USD supportive into the winter in the Northern Hemisphere.”
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