Strong US data changed currency market sentiment: euro is losing ground

On Thursday, August 27, the EUR/USD pair is trading in the 1.1645-1.1660 dollar range – slightly below yesterday's levels. The dollar maintains its advantage after strong inflation and business activity data out of the US the previous day.

The main event of yesterday was the data on the Personal Consumption Expenditures (PCE) price index – the Federal Reserve's preferred inflation gauge. In July, PCE rose 0.2% month-over-month, while analysts expected 0.1%.

Year-over-year inflation came in at 3.7% versus 3.6% a month earlier. Core PCE, excluding food and energy prices, remained at 3.3% annually. For the currency market, this is a rather important signal: inflation remains almost twice the Fed's 2% target. As a result, investors have become more cautious in expectations of possible monetary policy easing. The probability of a Fed rate hike at the September meeting rose to about 44% after the data, up from 36% earlier.

Additional support for the dollar came from US industry data. Durable goods orders in July increased by 1.1%, exceeding the forecast of 0.5% growth. Excluding transportation equipment, the indicator rose 0.4%. This points to the continuing resilience of the US economy.

However, the picture does not look unequivocally positive for the dollar. The second estimate of US GDP for Q2 kept economic growth at a 1.5% annualized pace. That is noticeably below the 2.1% in the first quarter. However, consumer spending jumped by 3.4%, and domestic private sector sales were revised up to 4.2%, indicating fairly strong domestic demand.

Today the market's attention shifts to the US labor market. At 15:30 Kyiv time, initial jobless claims data are due. The forecast is around 208 thousand claims versus 206 thousand the previous week. At the same time, US trade balance and business inventories data will be released.

If the number of claims comes in noticeably below the forecast, this will be an additional argument in favor of the resilience of the US economy and could strengthen the dollar. Conversely, a sharp rise in jobless claims could bring back expectations of a more dovish Fed policy and give the euro a chance to recover.