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After today's Labor Day holiday, this week's US calendar is packed with labor market data, culminating in Friday's August jobs report. Elsewhere, investors don't quite know what to make of an appeals court ruling Trump's universal tariffs illegal. Could it be a story of lost revenues weighing on the Treasury market? We expect the dollar to stay soft.
 

USD: Executive overreach

The US Labor Day holiday and the closed US Treasury market make it a little difficult to infer what investors make of Friday's federal appeals court ruling that President Donald Trump's universal tariffs were illegal. The finding here supports a May ruling from the Court of International Trade that the President had overreached by using an emergency powers act to back the tariffs. At the heart of the ruling is the need for congressional oversight on major economic decisions like these. What happens now? The appeals court ruled that the tariffs can remain in place for the time being, but it is unclear whether the case will move to the Supreme Court or down to the trade court. Global trading partners will no doubt find it premature to be celebrating just yet, but we'll be interested in seeing whether the Treasury market comes under any further pressure if the US has to hand back already received tariff revenues. This all comes at a time when the long end is under pressure from the President's pursuit of the Federal Reserve's Lisa Cook.

Away from politics, it's an important week for US labor market data. Wednesday sees job opening JOLTS data, followed by the ADP employment report on Thursday, and then the big August jobs report on Friday. Recall it was the July jobs report – and especially the 258,000 or downwards back month revisions – which reversed the July rally in the dollar and was the catalyst for Fed Chair Jerome Powell opening the door to a September rate cut.

The market now prices an 88% probability of a rate cut on 17 September. ING's call is for three Fed rate cuts this year versus just 56bp of easing currently priced. If we're right, this week's jobs data could add to downside for short-term US rates and the dollar. Once again, expect a lot of focus on the back-month revisions, given that only 60% of survey respondents are answering within the first month. Currently, consensus sits at a fairly soft +75k for Friday's number, and sees the unemployment rate ticking up to 4.3% from 4.2%.

The week also sees ISM business survey readings and the Fed's release of the Beige Book (Wednesday), which may provide further insights on price pressures and the labour market across the Fed's 12 districts.

This week's data could well see DXY break 97.50 support, below which only 97.20 stands between DXY and a test of the year's low at 96.38.
 

EUR: Focus on inflation

US developments will again dominate EUR/USD this week. But on the eurozone side, the focus will be on the August inflation data released tomorrow. Consensus expects a third month of 2.0% year-on-year readings, although national readings have been diverging a little.

German data has already come in a little stronger than expected, whilst French and Italian data have been a little softer. None of this, however, has made much of an impact on market expectations that the European Central Bank will hold the deposit rate steady at 2.00% on 11 September. Over the weekend, we have seen the ECB doves (e.g., Olli Rehn) fighting back by cautioning against complacency of the risk that inflation undershoots again. But unless we see some big downside misses on the data or French debt spreads blow through 100bp against German Bunds on the French budget saga, we doubt ECB easing expectations will shift much this week.

Instead, events in the US will determine the path of EUR/USD. We think there are enough dollar negatives out there for EUR/USD to trade through 1.1750 resistance and give the year's high at 1.1830 a good test.
 

GBP: Will the budget date be announced this week?

If the UK government wants the Bank of England to be able to react (by cutting rates) to a fiscally tight budget, it will have to announce the budget date this week. Remember that the Office for Budget Responsibility requires 10 weeks' notice for the budget, and the November BoE meeting is held on the 6th. The UK government remains in a tight fiscal corner, and one of the risks to sterling over the coming months is a tight fiscal/looser monetary policy package.

On the subject of monetary policy, we hear from a group of BoE members this Wednesday, testifying to the Treasury Committee. Presumably, they will mostly repeat their hawkish position, which sees the market pricing only 10bp of BoE rate cuts this year. This could leave GBP/USD in a position to test 1.3600 this week. Still, a break above there may be hard to sustain since our house view remains for a 25bp rate cut in November. Look out for further tax-raising trial balloons from the UK government – the most recent of which was Friday's suggestion of raising corporation tax for the UK banking sector.
 

CEE: The flood of data draws attention back to the local story

With the start of a new month, the calendar in the CEE region will be busy again. Today, GDP figures for the second quarter in Poland and Turkey and PMIs across the region will be released. We will also see GDP data this week – in Hungary tomorrow and in Romania on Friday.

More interesting will be the release of Turkey's inflation data for August, where we expect a slowdown from 2.1% to 1.5% month-on-month. This should translate into 32.2% YoY, supporting a 300bp rate cut in September in our forecast.

On Wednesday, the National Bank of Poland will also meet and is expected to cut rates again by 25bp to 4.75%, in line with market expectations. We'll be keeping a closer eye on the press conference the following day and the forward guidance for the rest of the year, given the slightly improved inflation picture as well as the higher-than-expected public finance deficit for next year.

On Thursday, inflation data will be released in the Czech Republic, where 2.7% should be confirmed for August, the same as in the previous month. On Friday, we will see more economic data from Hungary and the Czech Republic.

EUR/CZK has seen one of its biggest one-day moves this year, quickly sliding to 24.450 after Friday's solid GDP data. While we saw a similar reaction in rates and have been bullish on the Czech koruna for some time, we believe that the FX move was too fast, and we should see some correction here, more likely to levels around 24.500.

Unlike the bond market, EUR/PLN did not react to the worse-than-expected draft state budget for next year, but we are still at the highest levels since the beginning of August. The fiscal outlook may be a reason for the NBP to bring in hawkish forward guidance, which makes the Polish zloty attractive at current levels, and we could see a return to lower levels below 4.250 EUR/PLN this week.

EUR/HUF remains without a major story for now, and we are rather neutral here. However, the currency still retains its long positioning from the summer, which makes the Hungarian forint vulnerable to external shocks, in our view.

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