Merkel’s looking over her shoulder, but markets look towards US Rate Decision.
The dovish tone of Thursday’s Bank of England monetary policy decision weighed Sterling down on Friday. The Pound dropped to test the 1.3000 level against the dollar for the first time in four weeks and slumped to three-week lows of 1.1655 against the Euro by close of play. Chancellor Hammond has stated that the UK might have to leave the EU single market as it seeks to gain total control over its own borders and immigration criteria. Visegrad countries could block any exit deal unless rights to work in the UK were protected causing concerns over longer-term damage to the economic outlook.
The US Consumer Price Index for August printed at 1.1%, beating expectations of 0.8% and last month’s figure of 1.0%. Further gains were seen as the Consumer Price Index excluding food and energy also consensus by 0.1%, printing at 2.3%. With the US inflation increasing there was fresh speculation that the Federal Reserve would be pushed towards a near-term tightening, which boosted the dollar.The only mediocre data was the University of Michigan Consumer Sentiment failing to meet expectations of 90.8, matching last month’s result of 89.8. The Dollar opened up this morning trading just over the 1.3000 area versus Sterling.
The Euro strengthened by 0.9% versus the Pound from Friday’s European trading session. The single currency made advanced despite the Q2 Labor Cost missing targets of 1.6%, printing at 1%. In Germany, the state election result disappointed for Chancellor Merkel’s CDU party as its share of the Berlin vote declined to the lowest level since 1990 with the AfD party gaining close to 13%. With the second poor result in as many weeks, some suggest the German populace are voicing displeasure at Merkel’s immigration policies. The Euro opened this morning trading around the 1.1662 levels.
This start of this week will be light in data until Wednesday evening’s US Fed Interest Rate Decision. Currency moves in advance of this are likely to be linked to the decision.
Data to watch :3pm USD NAHD Housing Market Index