US inflation and jobs data to challenge Dollar’s rally

Following Fed Chair Powell’s speech, the focus for the next week will shift back to economic data. The job market indicators (including NFP) and inflation numbers will be crucial before the September FOMC meeting. Additionally, Australia and the Eurozone will release their inflation reports. The market will also pay attention to the Chinese PMI.

Here is what you need to know for next week: 

The US Dollar Index recorded its sixth consecutive weekly gain, reaching a multi-month high above 104.00. The strength of the US economy continues to bolster the US Dollar. While the US economy shows signs of softening, other economies face more challenging circumstances. This divergence in the outlook is a significant factor supporting the USD. 

The US Treasury yield curve showed mixed moves, with a decline in the 30-year yield and the 2-year yield posting its highest weekly close since 2007. Market participants are not anticipating further rate hikes from the Federal Reserve, and the likelihood of rate cuts next year has diminished. Stocks experienced a decline as market sentiment remained cautious due to a complex outlook characterized by slowing growth and higher interest rates.

Next week, market participants will continue to pay attention to central bankers’ statements. Federal Open Market Committee (FOMC) members have been sending mixed signals. The Federal Reserve is data-dependent, and currently, economic indicators allow for potential future interest rate hikes, which would be appropriate if inflation proves to be more resilient and heats up. 

The release of the US Core Personal Consumption Expenditures (PCE) Index on Thursday will be necessary as it is the Fed’s preferred inflation gauge. In terms of labor market data, the JOLTS report is scheduled for Tuesday, followed by the ADP Private Employment report on Wednesday. On Thursday, the weekly Jobless Claims data will be released, and the week’s highlight will be the Nonfarm Payrolls report on Friday. These reports have the potential to generate volatility in the markets as they provide insights into the health of the labor market and overall economic conditions.

EUR/USD has experienced its sixth consecutive weekly decline and is consolidating below the 20-week Simple Moving Average (SMA), finding support at the 100-SMA. The overall bias remains tilted towards the downside; however, some indicators show oversold conditions. Starting Wednesday, Eurozone countries will release their preliminary August Consumer Price Index (CPI) figures. Additionally, the European Central Bank (ECB) will release its meeting minutes on Thursday.

After trading sideways for weeks, GBP/USD broke to the downside and dropped below 1.2600. The bias is tilted towards the downside, as the pair closed below the 20-day Simple Moving Average (SMA) for the first time since February. The British Pound lost momentum following weaker-than-expected UK data. EUR/GBP rebounded from monthly lows and finished the week in positive territory near 0.8600.

USD/JPY reached a new high at 146.63 but experienced a subsequent pullback. The 146.30 region remains a significant resistance area. The divergence in monetary policies between the Federal Reserve and the Bank of Japan continues to support the US Dollar. However, the potential for intervention by the Bank of Japan may limit further upside.

USD/CAD recorded another weekly gain but failed to consolidate above 1.3600, indicating potential signs of consolidation or a correction shortly. Canada releases GDP data on Friday.

Antipodean currencies continue to face downward pressure amid cautious market sentiment. The upcoming Chinese Purchasing Managers’ Index (PMI) data, to be released on Thursday, will be closely monitored for further insights into the economic health of China, which can impact these currencies.

NZD/USD struggled to stage a significant recovery and ended the week flat, near monthly lows but above 0.5900. Similarly, AUD/USD finished the week around 0.6420 without any apparent signs of consolidation. The overall trend for both pairs remains downward.

In terms of events next week, Michele Bullock, the deputy governor of the Reserve Bank of Australia (RBA), will deliver a speech on Tuesday. It’s worth noting that she will become the RBA governor on September 18. Additionally, Australia will release its Monthly Consumer Price Index (CPI) on Wednesday.