Fed Odds Ease as Payrolls Report Sends Dollar into Repricing Mode

Recent US employment data has led to a shift in Federal Reserve pricing, according to Deutsche Bank strategists. The mixed Nonfarm Payrolls (NFP) report from Friday saw futures-implied probability of a hike fall to 44%. This is down from around 54% before the release.

The analysts at Deutsche Bank see a broadly stable labour market and expect modest monthly gains in Consumer Price Index (CPI) and Producer Price Index (PPI). They also anticipate steady retail sales, but softer University of Michigan (UoM) sentiment data. This week's key economic indicator is the July US CPI, which could significantly impact September Federal Open Market Committee (FOMC) pricing.

Deutsche Bank economists expect headline CPI to rise by +0.15% mom after June’s -0.42% decline. Core CPI is forecast at +0.26% mom following an unchanged reading in June. The July PPI will be released on Thursday, with the analysts anticipating a 0.22% increase in headline producer prices and core PPI at +0.3% mom.

The preliminary University of Michigan consumer sentiment survey is expected to ease to 52.5 in August from 55.2 previously.