Week Ahead Forecast : Its the Inflation & Jobs Game

Traders will have a busy schedule, as inflation, central bank decisions, and U.S. labor data are expected to shape the mood in major currency pairs.

The US dollar is still supported for now, as inflation has stayed above the Federal Reserve’s comfort level. The headline PCE figure for August is expected to remain at 3.7% year-on-year, with core PCE forecast at 3.3%. Producer prices have also risen sharply, increasing to 5.4% from 4.8%, which continues to put pressure on the Fed to keep its policy stance restrictive.

NFP the main event

The U.S. jobs report on Friday may prove more significant. Nonfarm Payrolls are anticipated to rise by 100,000, which is a decrease from the previous figure of 162,000, and unemployment is expected to stay at 4.1%. Annual wage growth is projected to rise very slightly from 3.1% to 3.2%. A stronger report could support demand for the Dollar, while a clear negative surprise might raise concerns about slowing labor-market momentum.

The Australian dollar also has a significant week coming up. The markets currently expect a 92% probability that the RBA will increase its rates by 25 basis points to 4.60%. Inflation in Australia is then projected to climb from 3.5% to about 4.0%, and this could help support the value of the AUD if the pressure on prices continues.

The Euro will also be under consideration, with Eurozone inflation expected to increase from 3.2% to between 3.5% and 3.8%. If the figure is stronger than anticipated it could maintain expectations of further ECB interest rate hikes and boost demand for the Euro.

Conclusion

This week’s main focus remains inflation and interest-rate expectations. The Dollar remains supported by persistent U.S. inflation, although higher price pressures in Australia and the Eurozone may also keep the AUD and EUR in demand. The U.S. jobs report released Friday will be key to whether the Dollar can maintain its current advantage.