The dollar saw broad-based losses against the majors last week. NOK, AUD, and GBP outperformed while JPY, CHF, and CAD underperformed. The growth-sensitive majors are benefitting from broad risk on impulses after the Fed’s 50 bp cut, but we continue to believe the market is overestimating the bank’s capacity to ease. As such, further gains for risk assets may be choppier in the coming days and weeks.

AMERICAS

The market continues to overestimate Fed easing. The Fed has tried its best to rein in dovish expectations but the market is still pricing in 75 bp of easing by year-end and 225-250 bp over the next 12 months. This is deep recession pricing and it's simply not happening. We expect Fed officials to push back against the market in the coming days and weeks. Ahead of the weekend, lone dissent Governor Bowman said she feared that a jumbo cut sends a “premature victory” message to the markets. We concur, but until the market reprices Fed easing, we think the dollar will remain vulnerable.

There are plenty of Fed speakers this week. Bostic, Goolsbee, and Kashkari speak Monday. Bowman speaks Tuesday. Kugler speaks Wednesday. Collins, Kugler, Bowman, Powell, Williams, Barr, Cook, and Kashkari speak Thursday. Bowman speaks Friday.

U.S. data highlight will be PCE Friday. Headline is expected to fall two ticks to 2.3% y/y while core is expected to pick up a tick to 2.7% y/y. Of note, the Cleveland Fed’s Nowcast model sees headline at 2.3% and core at 2.8%. Looking ahead to September, the model sees headline at 2.1% and core at 2.7%. Overall, the progress on inflation seen since April is encouraging and the FOMC still projects PCE inflation to return sustainably to 2% in 2026.

Personal income and spending will be reported at the same time. Both are expected to remain indicative of solid domestic demand activity. Personal income is projected to rise 0.4% m/m vs. 0.3% in July, personal spending is expected to increase 0.3% m/m vs. 0.5% in July, and real personal spending is forecast to rise 0.1% m/m vs. 0.4% in July. Of note, control group retail sales used for GDP calculations grew 0.3% m/m in August after rising 0.4% the previous month.

S&P Global reports its preliminary September PMIs Monday. Manufacturing is expected at 48.6 vs. 47.9 in August, services is expected at 55.3 vs. 55.7 in August, and the composite is expected at 54.7 vs. 54.6 in August. If so, the composite would rise for the second straight to just below the June peak of 54.8.

Conference Board September consumer confidence will be reported Tuesday. Headline is expected at 103.0 vs. 103.3 in August. If so, it would be the first drop since June but would remain roughly within the same narrow range that’s held throughout the past two years. Positive real wage growth, rising house prices, and encouraging labor demand suggest household spending will remain an important tailwind to GDP growth. University of Michigan reports final September consumer sentiment Friday.

We get another Q2 GDP revision Thursday. Growth is expected to be revised down a tick to 2.9% SAAR. Of course, this is old news as markets are already looking ahead to Q3 and Q4. The New York Fed’s Nowcast model is tracking Q3 growth at 3.0% SAAR and Q4 growth at 2.7% SAAR. Both estimates will be updated Friday. Elsewhere, the Atlanta Fed’s GDPNow model is tracking Q3 growth at 2.9% SAAR and will be updated Friday after the data. The Fed's updated macro forecasts may be a tad too optimistic but we agree with the directional message; that is, we see a soft landing and avoid recession.

August Chicago Fed National Activity Index will be reported Monday. Headline is expected at -0.20 vs. -0.34 in July. If so, the 3-month moving average would fall to -0.21 vs. -0.06 in July. While this would be the lowest since March, it would still be well above the -0.7 threshold that typically signals recession.

Regional Fed surveys for September will continue rolling out. Philly Fed non-manufacturing and Richmond Fed manufacturing (-12 expected) and services will be reported Tuesday. Kansas City Fed manufacturing will be reported Thursday, followed by its services reading Friday.

Canada reports July GDP Friday. Statistics Canada estimates real GDP to be essentially unchanged for a second consecutive month in July. Soggy economic activity, slower inflation, and growing slack in the labor market argue for a 50 bp rate cut at the next Bank of Canada meeting October 23. The swaps market pricing over 50% odds of such a cut.

EUROPE/MIDDLE EAST/AFRICA

Eurozone September CPI data start rolling out. France and Spain report Friday. France’s EU Harmonised inflation is expected at 1.9% y/y vs. 2.2% in August, while Spain’s is expected at 1.8% y/y vs. 2.4% in August. Spain is one of the only eurozone countries to report core inflation and it is expected to pick up a tick to 2.8% y/y. Germany and Italy report next Monday and the eurozone reports next Tuesday. Continued disinflation will allow the ECB to continue easing.

There are plenty of ECB speakers this week. Cipollone speaks Monday. Muller, Escriva, and Nagel speak Tuesday. Lagarde, Guindos, and Schnabel speak Thursday. Rehn, Lane, Cipollone, and Nagel speak Friday. The battle between the hawks and the doves will continue to play out. For now, the hawks are controlling the narrative as market odds for an October cut are only 25%.

Eurozone reports preliminary September PMIs Monday. Headline manufacturing is expected to fall a tick to 45.7, services is expected at 52.3 vs. 52.9 in August, and the composite is expected at 50.5 vs. 51.0 in August. Looking at the country breakdown, the German composite is expected to fall two ticks to 48.2 and the French composite is expected to fall more than 1.5 points to 51.5 as the Olympics boost wears off.

Germany reports September IFO survey Tuesday. Headline is expected at 86.0 vs. 86.6 in August, driven by a drop in both current assessment and expectations to 86.1 and 86.5, respectively. October Gfk consumer confidence will be reported Thursday and is expected at -22.8 vs. -22.0 in September. August retail sales will be reported sometime this week and we see downside risks given the ongoing drop in sentiment indicators.

Eurozone reports August money supply data Thursday. Broad monetary growth (M3) is expected to rise to an 18-month high at 2.5% y/y vs. 2.3% in July. Overall, credit dynamics are improving but remain very weak by historical standards.

ECB reports August inflation expectations Friday. 1-year expectations are expected at 2.7% and 3-year expectations are expected at 2.3%, both down a tick from July. Easing inflation expectations leaves plenty of room for the ECB to keep cutting interest rates.

U.K. reports preliminary September PMIs Monday. Manufacturing is expected at 52.2 vs. 52.5 in August, services is expected at 53.5 vs. 53.7 in August, and the composite is expected at 53.5 vs. 53.8 in August. With the data remaining firm, the Bank of England is likely to remain on its cautious easing path and a 25 bp cut is expected at the next meeting November 7.

U.K. CBI reports September surveys. Industrial trends will be reported Monday. Total orders are expected at -23 vs. -22 in August. Distributive trades will be reported Friday.

Riksbank meets Wednesday and is expected to cut rates 25 bp to 3.25%. The market sees 30% odds of a larger 50 bp move. We believe the Riksbank can afford to keep moving in 25 bp increments as CPIF ex-energy inflation is running just above 2% y/y. After this week, there are two remaining policy meetings scheduled the rest of the year on November 7 and December 19. Governor Erik Thedeen’s recently stated he’s looking for “three additional cuts” by December. New sets of macro forecasts will be published this week in the September Monetary Policy Report.

Swiss National Bank meets Thursday and is expected to cut rates 25 bp to 1.0%. The market sees nearly 40% odds of a larger 50 bp move. We believe the SNB will slash rates by 50 bp as inflation is undershooting the SNB’s Q3 projection of 1.5%. In August, headline CPI dipped two ticks to 1.1% y/y (lowest since September 2021) while core CPI printed at 1.1% y/y for a third consecutive month. Moreover, the trade-weighted Swiss franc strengthened in both nominal and real terms since the SNB cut rates in March and June. The September meeting will be the last one chaired by outgoing president Thomas Jordan. Martin Schlegel takes the helm on October 1.

ASIA

Japan data highlight will be September Tokyo CPI Friday. Headline is expected at 2.2% y/y vs. 2.6% in August, core (ex-fresh food) is expected at 2.0% y/y vs. 2.4% in August, and core ex-energy is expected to remain steady at 1.6% y/y. If so, it would be a significant reversal of the recent rise in inflation and reinforces our doubts that the BOJ will tighten more than is currently priced in. Some analysts are calling for a December hike but we think it will be a 2025 story.

Bank of Japan releases minutes of the July 30-31 meeting Thursday. At that meeting, it delivered a hawkish surprise as it voted 7-2 to hike the policy rate 15 bp to 0.25% vs. no change expected. In addition, the bank said it would reduce its monthly bond-buying to JPY3 trln vs. JPY6 trln previously. According to the BOJ “if the outlook for economic activity and prices presented in the July Outlook Report will be realized, the Bank will accordingly continue to raise the policy interest rate and adjust the degree of monetary accommodation.” Moreover, the BOJ warned that risks to Japan economic activity and prices are skewed to the upside for fiscal 2025. Of note, the BOJ subsequently delivered a dovish hold last week.

Japan also reports preliminary September PMIs Tuesday. With signs of slowdown emerging, we do not think the composite can sustain the cycle high of 52.9 last month.

Reserve Bank of Australia meets Tuesday and is expected to keep rates steady at 4.35%. We expect the bank to stick to its neutral guidance that “the Board is not ruling anything in or out.” The RBA is also expected to caution again “that it will be some time yet before inflation is sustainably in the target range” and “the need to remain vigilant to upside risks to inflation.” Earlier this month, RBA Governor Michele Bullock warned of the cost of high inflation and emphasized that “if the economy evolves broadly as anticipated, the Board does not expect that it will be in a position to cut rates in the near term.” While a rate cut is not on the agenda, attention will be on Bullock’s post-meeting press conference to see whether the Board considered a rate hike. We struggle to see how the RBA Board can still debate the case for a hike when underlying economic activity is weak and points to lower inflation pressures. Updated macro forecasts won’t come until the November 5 meeting.

August CPI will be reported Wednesday. Headline is expected at 2.7% y/y vs. 3.5% in July. If so, it would be the lowest since August 2021 and back within the 2-3% target range. The reading would reflect the government’s cost-of-living subsidy measures (electricity rebates and increases to rent assistance) and lower gas prices. CPI trimmed mean inflation stood at 3.8% y/y in July and has fallen two straight months.

Australia reports preliminary September PMIs Monday. With China continuing to struggle, we do not think the move in the composite above 50 last month can be sustained.

The RBA publishes its semi-annual Financial Stability Review Wednesday. The report will offer detailed insights of the current resilience of the financial system and potential risks to financial stability. In March, the report concluded that risks to the financial system from lending to households, businesses, and commercial real estate (CRE) remain contained.