US Dollar: Fed pricing shifts with softer data – Deutsche Bank

FXStreet Insights Team FXStreet

Deutsche Bank strategists note that Friday’s mixed United States (US) Nonfarm Payrolls (NFP) report led to a notable repricing of September Federal Open Market Committee (FOMC) odds, with futures-implied probability of a hike falling to 44%. They see a broadly stable labour market and expect modest monthly gains in US Consumer Price Index (CPI) and Producer Price Index (PPI), alongside steady retail sales and softer University of Michigan (UoM) sentiment data.

Fed odds ease after payrolls

"This all follows last Friday’s US payrolls report certainly offering a mixed assessment of labour market conditions."

"Our economists view the report as consistent with a broadly stable labour market rather than a sharp deterioration, noting that demographic factors continue to weigh on participation."

"Following Friday's payrolls report, which was somewhat mixed but appeared more dovish than hawkish at face value, attention this week will be firmly on July US CPI (Wednesday), which could go a long way towards tipping the balance for September FOMC pricing."

"Futures pricing fell by around 10 percentage points immediately after the release on Friday, leaving the implied probability at 44%."

"On this big number, our economists expect headline CPI to rise by +0.15% mom after June’s -0.42% decline, while core CPI is forecast at +0.26% mom following an unchanged reading in June."

"Attention will then turn to July PPI on Thursday. Our economists expect headline producer prices to rise by +0.22% mom, with core PPI at +0.3% mom."

"Friday’s US data will offer the first major read on Q3 activity. Our economists expect retail sales to increase by +0.3% mom in July, while lower fuel prices may weigh on the headline figure relative to underlying spending measures. The preliminary University of Michigan consumer sentiment survey is expected to ease to 52.5 in August from 55.2 previously."

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