US Dollar Cools as Inflation and Employment Data Weaken

The US dollar cooled last week as multiple macroeconomic events weighed on its strength. The latest data showed U.S. inflation and employment figures for July weakened simultaneously, causing market expectations to downshift a Fed rate hike in September. As a result, the US Dollar Index dipped to near 99.9.

Non-USD currencies diverged last week, with the Australian dollar remaining above the 0.7000 level due to the weaker greenback, while the Japanese yen stayed firm, benefiting from the narrowing U.S.-Japan interest rate differential and persistent expectations of a hawkish stance from the Bank of Japan.

This week is packed with macroeconomic data and policy events, centered on Fed policy signals and European inflation and economic data. On Monday, the US Empire State Manufacturing Index will be released. On Tuesday, U.S. ADP employment data will help gauge the extent of labor market cooling. On Wednesday, Eurozone CPI data and remarks by ECB President Lagarde will set the tone for European inflation expectations.

Thursday brings the release of the FOMC meeting minutes, where conclusions regarding rate cuts and balance sheet reduction will dominate trends in U.S. Treasuries and non-USD currencies. On Friday, preliminary PMI data from multiple countries and Japan's CPI will be published.