European FX Open - USD inches lower as mood improves

Recall, the USD received a decent boost late Thursday after US initial claims rose less than forecast, in turn providing some brief respite for a market currently fixated on just how soft the US labor market is getting.

EUR/USD dropped to weekly lows of 1.0882 while USD/YEN edged higher, though offers ahead of Wednesday's 147.90 weekly top continue to cap trade after the BOJ's summary of opinions showed that authorities believed monetary policy would remain accommodative.

USD gains slowed overnight as risk appetite improved following strong gains on Wall Street, while many cite the fact that the great bulk of JPY-funded carry positions have apparently been cleared (JPM said that ~75% of global carry trades were removed after recent sell-off).

Fed speak overnight saw Schmid note that the recent fall in price pressures has been "encouraging", but pushed back on further calls for rate cuts, saying that the Fed is "still not quite there". He also noted that the labour market "still appears healthy", remarking that "other indicators point to continued strength" despite seeing last Friday's weak labour market report questioning its resilience.

His colleague Barkin said that the Fed still has time to assess more data to determine if the US economy is normalizing or softening in a way that requires them to act more aggressively to cut rates. He also sees the disinflation trend broadly intact in the coming months. Goolsbee also pushed back on rate cuts by saying lines similar to his peers, that more data is needed to assess the US economy.

Meanwhile, Atlanta Fed's GDPNow model estimates real GDP to grow by ~2.910% in Q3, slightly higher than the previous release (at 2.896%).

Also overnight, Chinese CPI for July came in slightly higher than expected at 0.5% y/y vs the 0.3% median and 0.2% in June, a four-month high, driven by gains in food prices. The PBOC fixed the yuan at 7.1449 per Dollar, stronger than the estimates of 7.1679.

This session, early data includes the final CPI releases for July from Germany and Italy.

Swedish data comes in droves with Jun Household Consumption, private sector production, IP/orders and service production value as well as Swedish Housing Price Data from Maklarstatistik.

Norway specs will be focused on the July inflation report.

The US slate in bare, leaving focus on Canada's labour market report for July, with most expecting the unemployment rate to inch up to 6.5% from 6.4%. Net jobs are seen rising 25k vs the -1.4k outcome prior.

There is no central bank speak scheduled for the day.

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