The trend towards higher rates and a higher US dollar did not abate last week. However, unambiguously positive inflation data out of the US and the Eurozone did partially reverse the moves on Friday and gave hope that we are near the top in rates and the bottom in European currencies. Commodities also reversed their rally sharply on Friday, and this year’s winners, the Brazilian real and the Colombian peso, ended the week near the bottom of the rankings. This week the US labour market will be in focus. The September non-farm payrolls report on Friday is at the centre of the spotlight, but traders will also be looking at the JOLTS job openings report and weekly jobless claims for confirmation of the loosening trend seen lately. August retail sales out of the Eurozone on Wednesday will also provide a read on the state of the economy there, albeit a lagged one. Beyond economic data, a slate of ECB and Fed officials are scheduled to speak throughout the week.


The gloom around the UK economy cleared a bit last week, as growth for the first quarter of the year was revised significantly upwards. Further positive revisions to historical data confirms that the UK economy’s size is now solidly (1.8%) above its pre-COVID levels, although, like most European economies, remains below the pre-2019 trend. The pound continues to trade flat vs. its major peers, pressured lower by the Bank of England’s dovishness but finding some support in the more upbeat tone of economic news.


The ECB received some unambiguously good news with the September flash HICP report last week. Both the headline and the core measures fell sharply, by a lot more than markets had been expecting. The disinflationary trend has crossed the Atlantic and can now be clearly seen in Europe. Markets are expecting no further hikes this cycle out of the ECB, and as in the US, the question seems to be how long they will be held at current levels. The news supported European government bonds and the common currency. With few economic publications of importance this week, the euro will trade off developments in the US, particularly the wealth of labour market data to be released this week.


As in the Eurozone, inflation data in the US last week was a dose of welcome news for the Federal Reserve. The Fed’s preferred measure of inflation, the Personal Consumer Expenditures index, also undershoot expectations both in its headline and core indices. US rates had shot up to 16-year highs before the publication but regained some lost ground after the release. With markets not convinced that there will be further hikes this cycle, the investors’ attention shifts back to economic data, particularly inflation and labour indicators. Friday’s September payrolls report is the most critical data point out worldwide this week.