Forex News
TD Securities’ macro team, including Pooja Kumra, expects the ECB to raise the deposit rate by 25bp to 2.50% in September. They see limited forward guidance, with the Governing Council reiterating its data-dependent, meeting-by-meeting approach. New staff projections should justify the hike, with inflation risks still skewed to the upside despite slightly softer recent data.
TD previews ECB’s September decision
"We and the market expect the ECB to hike rates by 25bps in September, bringing the deposit rate to 2.50%. The Middle East conflict remains fluid, with no resolution yet on the table. While oil prices remain below the levels seen ahead of the June ECB forecast, natural gas prices have come under renewed pressure. "
"Despite the expected hike, we do not anticipate the ECB providing meaningful guidance on the next phase of policy. Instead, we expect the Governing Council to reiterate its meeting-by-meeting approach and its commitment to data dependency in determining future policy decisions."
"Taken together, the ECB's headline inflation forecasts are likely to be nudged marginally lower for 2026, but we see small upside risks (~0.1%) in 2027/2028 driven by the persistence of shocks as well as the sharp moves in natural gas. To give context, for Q3 2026, prices for natural gas itself are close to 30% higher than the ECB projections in June even though oil is 15% lower in this timeframe than estimated in June projections."
"The policy trade-off here—clearly higher, persistent inflation and only slightly weaker growth—should be enough to justify a hike rather than more patience. The risk assessment should continue to tilt towards upside risks to inflation and a balanced outlook for growth."
"We expect the Governing Council to raise rates by 25bp in September, in line with broad market expectations, while the policy statement is likely to remain largely unchanged, reiterating the ECB's data-dependent and meeting-by-meeting approach. The situation in the Middle East remains too fragile to give strong signals on the path forward."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
- Initial Jobless Claims went up to 206K vs. the previous week.
- Continuing Jobless Claims increased to 1.779M.
According to a report from the US Department of Labour (DOL) released on Thursday, the number of US citizens submitting new applications for unemployment insurance rose to 206K for the week ending August 29. The latest print came in above initial estimates (205K) and was higher than the previous week’s 204K (revised from 203K).
Additionally, the 4-week moving average increased by 1.5K to 207.25K vs. the previous week’s revised prints.
The report also indicated that Continuing Jobless Claims increased by 8K to 1.779M for the week ending August 22.
Market reaction
The Greenback trades with marked losses, retreating to the area of multi-day troughs near the 99.00 support level when gauged by the US Dollar Index (DXY). The Greenback’s strong decline appears to have found its catalyst on the severe pullback in USD/JPY in response to increasing speculation of a rate hike by the BoJ.
Employment FAQs
Labor market conditions are a key element to assess the health of an economy and thus a key driver for currency valuation. High employment, or low unemployment, has positive implications for consumer spending and thus economic growth, boosting the value of the local currency. Moreover, a very tight labor market – a situation in which there is a shortage of workers to fill open positions – can also have implications on inflation levels and thus monetary policy as low labor supply and high demand leads to higher wages.
The pace at which salaries are growing in an economy is key for policymakers. High wage growth means that households have more money to spend, usually leading to price increases in consumer goods. In contrast to more volatile sources of inflation such as energy prices, wage growth is seen as a key component of underlying and persisting inflation as salary increases are unlikely to be undone. Central banks around the world pay close attention to wage growth data when deciding on monetary policy.
The weight that each central bank assigns to labor market conditions depends on its objectives. Some central banks explicitly have mandates related to the labor market beyond controlling inflation levels. The US Federal Reserve (Fed), for example, has the dual mandate of promoting maximum employment and stable prices. Meanwhile, the European Central Bank’s (ECB) sole mandate is to keep inflation under control. Still, and despite whatever mandates they have, labor market conditions are an important factor for policymakers given its significance as a gauge of the health of the economy and their direct relationship to inflation.
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