North American FX Open - US PCE the focus

USD/YEN edged lower during Asian Horus after Tokyo CPI in August (and the cores) beat expectations at 2.6% y/y vs 2.2% the month previous, supporting the case for the BOJ to continue raising rates at a gradual pace.

Losses proved fleeting however as European specs soon reclaimed the 145.00 handle, with talk of month-end flow ahead of a long US weekend mulled as we inched higher.

Also overnight, EUR/USD managed to stay off this week's 1.1056 lows despite euro-area inflation dropping to the lowest level since mid-2021. CPI rose 2.2% y/y - significantly below July’s 2.6% and matched the median estimate, while core inflation eased to 2.8% y/y from 2.9%, also as expected.

Investors are betting on two or three more ECB cuts this year, plus additional steps in 2025, but recent ECB speak has been more cautious.

SCHNABEL noted overnight that risks to the inflation outlook persist - particularly in the services sector - and that the ECB shouldn’t cut rates too rapidly, while NAGEL noted late Thursday that officials shouldn’t rush to loosen monetary policy since their goals, while in sight, aren’t yet achieved. The comments followed those from LANE, who stressed at the weekend that the return to 2% "is not yet secure."

NORWAY's seasonally adjusted registered jobless rate for August fell to 2% from the previous month’s 2.1%. The outcome has seen odds for a November rate cut fall to 50% from 65% on Monday, with many now believing the first cut won't come until well into next year.

AUD/USD is staying off this week's 0.6824 high for now after weak Australian retail sales spooked bulls, with the report revealing retail-sales growth stalled in July as high interest rates saw households curb discretionary spending. Sales were unchanged from the prior month vs forecasts for a 0.3% gain.

Nervous trade is now evident ahead of today's key US PCE release, while the Michigan consumer sentiment and those long-term inflation expectations will also be eyed.

Key second-quarter Canadian GDP data is also due. The Canadian economy is forecast to expand 1.8% SAAR in Q2 to around 0.45% q/q. A touch faster than in Q1, but still 60bp below the long-term trend.

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