USD
Dovish skew now dominant; July CPI is the swing factor.
The July payrolls report at -23K against a +83K consensus was the first outright contraction of the cycle, with private employment adding only 30K for a second consecutive weak month. September hike pricing has collapsed from fully priced ahead of the July FOMC to around 50%. Wednesday’s CPI is the week’s centre piece: consensus is 3.5% YoY, unchanged from a June print that surprised sharply lower, and HSBC expects broad-based core softness with both headline and core undershooting. The complication is Warsh. The FT reports he would be prepared to hike in September if inflation readings are strong and markets ratchet up rate expectations, with people close to him conceding missteps in his first ten weeks, including a failure to reinforce his commitment to price stability. Q2 unit labour costs at +1.4% annualised argue against genuine second-round effects from the energy shock.
