Top of the Morning: CIO Strategy Snapshot - Data concerns of a different sort
At a Glance
The UBS CIO desk interprets the July CPI prints as broadly in line with expectations, with core CPI rising 32 bps month-over-month to 3.1% year-over-year, while core goods ex-cars rose 22 bps—a potential easing from the prior month's 55 bps. The desk downplays tariff-induced inflation concerns, citing the sequential slowdown, and suggests the data keeps the Fed on track for a September cut. Chair Powell's Jackson Hole speech is the key near-term catalyst, with the desk expecting a balanced tone that reinforces data-dependency. The cross-firm consensus sees EUR/USD in a 1.04–1.12 range through year-end, with UBS at the upper end.
Key Takeaways
- 01July CPI data largely in line with expectations, with core CPI at 3.1% year-over-year.
- 02Core goods ex-cars slowed to 22 bps month-over-month from 55 bps, suggesting tariff effects are contained.
- 03UBS expects Fed to cut 25 bps in September; Chair Powell's Jackson Hole speech is the next catalyst.
- 04The desk sees EUR/USD supported in a 1.04–1.12 range, with UBS at the upper end of consensus.
Full Analysis
What the desk is arguing
The UBS CIO desk argues that the July CPI report is a 'clean' print that supports a narrative of gradual disinflation, with tariff impacts appearing contained. Per the full note [ubs-on-air], the desk focuses on the core goods ex-cars component rising 22 bps month-over-month, down from 55 bps in June, as evidence that tariff pass-through is not accelerating.
The desk highlights that headline CPI rose 20 bps month-over-month to 2.7% year-over-year, while core CPI rose 32 bps to 3.1% year-over-year—both in line with expectations. This suggests the Fed retains flexibility to cut in September, and the desk sees the data as supportive of a 25 bps cut.
The counterfactual the desk implicitly rejects is that the sequential easing in core goods prices is temporary or that services inflation—which is stickier—could re-accelerate. By focusing on the goods component, the desk signals confidence that tariff effects are fading.
Market Implications
Watch EUR/USD for a break above the 1.10 level if Powell's speech leans dovish and confirms a September cut. The 1.04–1.12 range is the consensus year-end band, with UBS targeting the upper end. Positioning could shift if core services inflation surprises higher.
From the original
Jason drops by to reflect on the recent July inflation prints and what the data suggests about the inflationary environment in the US. We also address concerns about potential political interference in producing economic data, preview Chair Jay Powell’s speech at Jackson Hole, an
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