ACM Update 01-09-25
As August drew to a close, US data and events remained at the heart of market action. A US appeals court ruled many of Donald Trump’s tariffs as illegal, whilst the President continued with his recent Fed meddling.
In Europe, the July ECB minutes revealed downside concerns for inflation and a continuance of the “wait and see” policy approach.
September kicks off with a US bank holiday for Labor Day on Monday, before the latest Non-Farm Payrolls jobs data is released on Friday. This will be more crucial than usual given the high-profile firing after last month’s publication. Any sizeable figure or upward revision could well call into question the integrity of the data.
Into the final third of the year we go and as with the first eight months, Donald Trump remains pivotal to currency market movements. His recent involvement in hiring and firing within previously independent US organisations, has led to much uncertainty.
The President’s latest actions saw him firing Federal Reserve member Lisa Cook, after allegations of mortgage fraud. A court hearing on Friday intended to establish whether she would remain temporarily barred whilst her lawsuit against Trump continues, ended without verdict. If Trump can fire Cook, he would be well on his way to having appointed the majority of the Federal Reserve board.
One of Trump’s appointees and a potential Fed Chair come next year, Christopher Waller, started calls for a “jumbo” rate cut, if unemployment data continues to disappoint. He also stated a first cut should come in September.
In other legal cases involving the President, many of his tariffs were declared illegal last week in a 7-4 decision from the US Court of Appeals. The tariffs which he implemented under an emergency act, were determined “invalid as contrary to law”. The matter now gets deferred to the 14th of October, to allow time for the White House to ask the US Supreme Court to ultimately decide.
Luckily there was some actual economic data too. US Durable Goods orders continued their recent slump in July, down a further -2.8% following a -9.4% drop in June. These are one of the areas suffering heavily as a result of the trade war. The Preliminary GDP reading for Q2 was also published, showing a quarterly rise of 3.3% and above forecasts.
The Fed’s chosen inflation metric of Core PCE inflation showed a rise to 2.9% for July, the highest reading since February. This was in line with forecasts, but suggests that tariffs are indeed working their way through the economy. Consumer Confidence figures however remain strong, exceeding estimates again this month.
Despite a range of circa 1% during the week, GBP-USD closed out very close to where it started at just above the 1.35 level. Movements on the pair can be seen in the chart below:
With a four-day week in the UK after last Monday’s bank holiday, data releases were relatively quiet to close out August. A speech from Bank of England policymaker Catherine Mann on Tuesday, suggested she sees a “strong case” for keeping interest rates where they are for a prolonged period. She also stated her readiness though to cut rates, if downside risks to growth continue.
Mann was one of those who voted against the rate cut at the start of August, on the basis that the Bank’s predicted uptick in inflation is now beginning to emerge. She continued that higher interest rates would logically bring inflation back down sooner, but the weak outlook for UK growth meant raising rates wasn’t an option, as it may then lead to a cut soon after.
The only other UK release was the BRC (British Retail Consortium) Shop Price Index. This measures inflation in retail stores and recorded 0.9% annualised growth, the highest in a year and a half. This mirrors the recent peak in CPI inflation, which equally is in line with the Bank of England’s predictions.
On the continent, the minutes from late July’s ECB meeting were published last week. These showed the committee went into the summer break giving themselves a firm pat on the back, as they saw their battle versus inflation as now job done. They see the inflationary risk as “balanced”, thus potential either way.
Growth risks however were still pointed to the downside, citing any further escalations in global trade tensions and tariff wars, as concerns. They also commented that markets seem to be reacting less severely to tariff news now than they had been back in April when matters exploded.
Whilst the ECB still has concerns about global uncertainty, they remain set on their wait and see approach for now. This should see EU interest rates remain set at their current 2.15%, with just three more meetings to come before the end of the year. The first of those is next Thursday 11th September.
There were a few other minor European releases. The German IFO business climate for measuring economic health recorded its highest figure in 15 months. Retail sales in the country fell by -1.5% though, whilst inflation nudged up slightly. French data remained wobbly with consumer spending down in July, as inflation rose by a monthly 0.4%. Spanish inflation remained flat at 2.7%.
Overall, a relatively narrow trading week to end the summer lull for GBP-EUR, with less than a cent’s worth of range on the pair. Movements can be seen in the chart below:
The week ahead:
Monday – US & CAN Bank Holiday, SPA/ITA/FRA/GER/EU/UK Manufacturing PMIs (08:15-09:30), UK Mortgage Approvals (09:30), EU Unemployment Rate (10:00)
Tuesday – EU CPI Flash Estimate (10:00), US ISM Manufacturing PMI (15:00)
Wednesday – Australian GDP (02:30), ECB Lagarde speech (08:30), EU Services PMI (09:00), BoE Breeden speech (09:15), UK Services PMI (09:30), US JOLTS Job Openings (15:00), Fed Beige Book (19:00)
Thursday – EU Retail Sales (10:00), US ADP Non-Farm (13:15), ISM Services PMI (15:00)
Friday – UK Retail Sales (07:00), US Non-Farm Payrolls (13:30)
With the quieter trading conditions of August now behind us, markets are back into full swing again for September. And nothing could demonstrate that more than the release of the latest round of US jobs data, culminating in Non-Farm Payrolls on Friday.
These are some of the most significant releases of any given month, but this time around even more so given the events of last month. A big fall in figures, previous months heavily revised downwards, and then the head of the body which compiles the figures, unceremoniously sacked by Donald Trump.
Another drab month is predicted, but any figure could lead to Dollar weakness. A low figure would generate further concerns about the US economy, the prospect of upcoming interest rate cuts etc. A figure well above expectations would call into question the integrity of the data coming from the Bureau of Labor Statistics, with Trump seemingly pulling the strings.
Aside from that and the usual build-up of other US jobs data, we also have the Federal Reserve’s Beige Book release on Wednesday evening. This provides all of the data Fed decision makers will use in their meeting two weeks later.
In Europe, the latest round of PMI figures emerge on Monday morning, whilst Unemployment, CPI inflation and Retail Sales figures are spread across the week. UK news is limited to PMI figures for Manufacturing and Services sectors, with Retail Sales figures on Friday.
Friday lunchtime’s Non-Farm Payrolls will be the big release though, thus expect plenty of volatility around that time. For any requirements, especially those Dollar-related, make sure to reach out to the Aston team.
Have a great week.
