USD remains under pressure, focus turns to inflation data

Thursday is a busy day in terms of economic data. Early on in the Asian session, Japanese retail trade and industrial production data will be released. Later, New Zealand’s ANZ Business Confidence, Chinese PMI data for August, and Australian Private Sector Credit will be reported. The highlights of the day will be Eurozone CPI and US Core PCE.

Here is what you need to know on Thursday, August 31:

The US Dollar Index fell for the third consecutive day, reaching the lowest close in two weeks, just above 103.00. The Greenback continues to face downward pressure due to disappointing US data and declining Treasury yields. The 10-year yield hit a bottom at 4.08% (lowest since August 11) before rebounding to 4.11%.

Following Tuesday’s JOLTS and Consumer Confidence figures falling below consensus, on Wednesday, the ADP employment change also came in below expectations, and Q2 GDP was revised lower. The change in employment reported by ADP was 177,000, below the market consensus of 195,000. These numbers do not bode well for Friday’s Nonfarm Payrolls report. However, before the key employment report, on Thursday, the Core Personal Consumption Expenditure Price Index will be released. This index is the Federal Reserve’s preferred measure of inflation. Additionally, the weekly Jobless Claims and the Chicago PMI are also due for release.

Nela Richardson Chief Economist, ADP:

This month’s numbers are consistent with the pace of job creation before the pandemic. After two years of exceptional gains tied to the recovery, we’re moving toward more sustainable growth in pay and employment as the economic effects of the pandemic recede.

During the Asian session, a key report to watch out for is the Chinese August NBS PMI. The Manufacturing Index is expected to rise moderately to 49.4, while the Services Index is anticipated to decrease from 51.5 to 51.1.

Data released on Wednesday indicated that the German inflation rate fell from 6.2% to 6.1% in August, reflecting a continued downward trend. However, in Spain, inflation rebounded from 2.3% to 2.6% as expected. The Eurozone Consumer Price Index (CPI) is scheduled to be released on Thursday and also German Retail Sales and Unemployment. 

Analysts at Commerzbank on German inflation: 

In the coming months, the inflation rate is likely to continue to fall significantly, in particular because external cost pressures have decreased noticeably. However, stronger wage growth is likely to continue to push up service prices, which is why at least the core inflation rate will probably remain well above the ECB’s target of 2%.

EUR/USD rose to 1.0947, reaching the highest level in two weeks, supported by a weaker US Dollar and increased expectations of a more hawkish stance from the European Central Bank at the September meeting. The pair experienced a pullback but still remains above 1.0900 with a bullish bias.

The Pound outperformed on Wednesday. EUR/GBP retraced from its weekly highs, falling to 0.8585. GBP/USD rose a hundred pips to 1.2747, the highest level since August 23, but later trimmed its gains. It is currently hovering around the 20-day SMA near 1.2720.

USD/JPY reached a low of 145.55 before rebounding to 146.25, ending the day in positive territory. The upward movement occurred as US yields moved away from their weekly lows. Japan is scheduled to release Retail Sales and Industrial Production data on Thursday.

The Australian Dollar was unaffected by lower-than-expected inflation data and the sharp decline in Building Permits. AUD/USD finished flat around 0.6470 after failing to hold above 0.6500. The short-term bias remains to the upside, but the Aussie has lost momentum. In Australia, Private Sector Credit and Capital Expenditure data are due for release.

NZD/USD faced rejection from above the 20-day SMA and the 0.6000 level, indicating difficulties in extending its recovery. The ANZ Business Outlook survey is scheduled for release on Thursday.

USD/CAD continued its retreat for the third consecutive day, extending the decline from 1.3645. The key support level is situated between 1.3490 and 1.3500.

Gold rose for the third consecutive day, encountering resistance at $1,950. Lower yields and a weaker Dollar provided support for the yellow metal. Silver reversed after reaching $25.00 and closed marginally lower at $24.60.