Euro Inflation Rises as ECB Heads Into September Decision
Summary
Euro area inflation moved further above target in August, driven largely by higher energy costs
The European Central Bank decides on rates on Thursday, with economists surveyed by Reuters unanimously expecting an increase
Stronger US employment data lifted the dollar and increased expectations of a Federal Reserve rate rise this month
US inflation and UK growth figures on Friday complete an important week ahead of Fed and Bank of England meetings next week
The European Central Bank takes centre stage this week after inflation across the euro area rose to 3.3% in August. Higher energy costs accounted for most of the increase, while underlying price pressures were more subdued and services inflation eased. The ECB raised rates in June before pausing in July, and every economist surveyed by Reuters last week expects another quarter-point increase when policymakers meet on Thursday. The Bank itself continues to stress that decisions will be taken meeting by meeting rather than following a predetermined path.
Across the Atlantic, the picture changed again on Friday when US employment rebounded much more strongly than expected. Payroll growth recorded its strongest increase in five months and unemployment remained unchanged, prompting markets to increase expectations of a Federal Reserve rate rise in September. The dollar strengthened after the report, although some of that initial move faded as attention shifted towards this week’s inflation figures.
Inflation is now the key outstanding piece of the Federal Reserve’s September decision. Governor Christopher Waller said last week that he would support leaving rates unchanged if the August data showed further progress towards the Fed’s inflation objective, but would consider an increase if price pressures strengthened. Producer prices are released on Thursday and consumer inflation follows on Friday, giving policymakers their final major inflation readings before the Federal Reserve meets next week.
Sterling has a quieter start to the week, with the main domestic release arriving on Friday. The UK economy continued to expand in June and across the second quarter, and July GDP will provide the next update on activity before the Bank of England meets on 17 September. A separate survey released over the weekend showed permanent staff hiring increased in August for the first time since 2022, offering a more positive signal from a labour market that had been weakening earlier in the year.
Energy also remains part of the broader inflation picture. Oil prices extended their gains on Monday following further US and Iranian strikes on vessels around the Strait of Hormuz, where commercial traffic has fallen sharply. That keeps the energy shock relevant for central banks already assessing how higher fuel and transport costs are feeding through into inflation.
Events to Watch This Week:
Thursday 10 September: ECB monetary policy decision; US Producer Price Index for August
Friday 11 September: US Consumer Price Index for August; UK GDP and trade data for July
Thursday’s ECB decision is the first major policy event of the week, followed by Friday’s US inflation and UK growth figures. Together, the releases provide the final major updates for the dollar and sterling before the Federal Reserve and Bank of England make their own September decisions next week.
Speak to the Orbis dealing team ahead of this week’s key releases to discuss your upcoming currency requirements.
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