US business activity cools in October; strong demand fueling price pressures
US business activity has shown signs of cooling in October, albeit modestly, while persistent strong demand is enabling companies to elevate their pricing power. This dynamic suggests that inflation pressures are likely to remain elevated as consumer price stability faces another headwind. The interaction between slowing growth and rising prices is crucial for assessing future monetary policy, making this development particularly timely for FX markets focused on USD dynamics.
Where it sits in our coverage
Our consensus EUR/USD target sits at 1.075 (median across 8 firms), with Goldman at the upper bound (1.12) and BofA at the lower (1.04). Reuters' assessment indicates a need to closely monitor inflation metrics and their potential implications for market sentiment.
How firms align
Goldman is currently projecting a target of 1.12, aligning with the notion that inflationary pressures could strengthen the dollar as businesses pass costs to consumers. Conversely, BofA's target of 1.04 suggests a more cautious outlook, potentially anticipating a sharper slowdown in economic growth. For further details, refer to our internal reports on Goldman and BofA.
What the data shows
Recent revisions by Goldman have indicated a belief that pricing pressures could lead to a higher average price index, reinforcing their bullish stance on the dollar. For additional insights, see /research/inflationimpact.
How firms align with this view
Aligned with the headline view
Contrary positioning
Key takeaways
- 01October's data signals persistent inflation risks amid slowing growth; monitor USD for vulnerability.
- 02Inflation erosion of purchasing power could bolster the dollar if passed through to consumers.
- 03Key level to watch for potential FX moves: USD reception at 1.075 if inflation remains high.
- 04Ongoing demand amidst cooler activity could lead some firms to adjust growth forecasts.
Market implications
Investors should watch upcoming PCE inflation data on the calendar, expected to provide clarity on the inflation trajectory. A clear indication above consensus could see the USD strengthen against peers, with our current consensus sitting at 1.075 for EUR/USD.
Risks to this view
A significant decline in consumer spending could reverse the inflationary trends, prompting reassessments of the current pricing power of firms. Additionally, unexpected dovish moves from the Fed would challenge current bullish views on the dollar.
Sentiment by currency
USD+EUR JPY GBPComposite USD score: +0.65
Sources & References
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