North American FX Open - A respite from this week's risk-off trade

There has been a degree of respite overnight from this week's risk off trade, with equity markets mostly posting minor gains and the safe haven currencies paring gains, while the high beta currencies have posted tentative recoveries.

The better than expected US Q2 GDP data has been the cause of the easing in pessimism, with Bank of America in their review of the data asking "what slowdown?". They argue that the economy continues to disprove sceptics and while US growth has cooled relative to last year, it has done so at a gradual pace. BofA see the risk of a sharp slowdown as low and insist that there is strong underlying momentum in the US economy, which means that the Fed can remain patient.

After briefly dipping below 152.00 yesterday, Usd/Jpy has rebounded to 154.48 in European trade, which has been helped slightly by the lower than expected Tokyo CPI report for July. The headline rate slowed to 2.2% y/y, below the 2.3% level which was both the consensus forecast and the June reading. Tokyo CPI ex fresh food and energy slowed to 1.5% y/y, which was slower than the 1.6% consensus forecast and the 1.8% reading in June.

In US election news, former President Barack Obama and his wife Michelle have officially endorsed Kamala Harris for President. Meanwhile President Trump's campaign director has said details of a debate with Harris cannot be finalized until the Democrats formally decide on their nominee.

ECB inflation expectations for 1 and 3 years remained unchanged in June at 2.8% and 2.3% respectively

US data focus today falls on the PCE Price Index, personal income/spending and the UMich survey, but it feels like the markets focus has now switched from obsessing over inflation to worrying about growth.

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