Soft, medium, hard? – Commerzbank

The landing for the US economy can be soft, medium or hard. Despite the weakening labor market, our economists continue to believe that the US economy can avoid a recession, even if the risks of one have increased, of course. An impending hard landing would be the single main reason the Fed would cut interest rates by 50 basis points in September, notes Commerzbank FX analyst Antje Praefcke.

EUR/USD to trade sideways for now

“Right now it doesn’t look like a soft landing, it looks like an average one. A few stronger effects here and there, but overall still bearable for the economy. The economy has cooled but is proving relatively resilient, as is the labor market. At the same time, inflation is rapidly approaching the inflation target. This also explains why the market currently sees a rate cut of more than 25 basis points possible for September, but is unwilling to fully bet on 50 basis points.”

“The market still expects about 100 basis points of interest rate cuts by the end of the year with three FOMC meetings remaining. But the data wasn’t so bad that the Fed should rush ahead and cut rates by 50 basis points in September. Rather, in my view, it can continue to monitor the evolution of inflation and especially the labor market in the coming weeks and months and react accordingly if there are signs of a stronger slowdown in the labor market, which could make a 50 year old. -cutting out the basic point necessary from his point of view.”

“Ahead of the Fed meeting on September 18th, there is only one important data point left that could change market expectations: tomorrow’s August inflation data. Seasonally adjusted monthly rates of change in prime and base rates are likely to be between 0.1% and 0.2% and thus in line with the 2% inflation target. Inflation data should surprise significantly tomorrow to further push interest rate expectations. Therefore, the market is likely to quickly shift its focus to Thursday’s ECB meeting and trade EUR/USD sideways for the time being.”