Will wages hold down rates?
UK unemployment fell to 4.3% in the 3 months to June from 4.4% previously, a 42-year record low. August jobless claims also declined but the main focus, was on the average earnings component with the 12-month increase held to 2.1% again. The subdued reading dampened expectations of higher inflation and also curbed speculation that the Bank of England would tighten monetary policy.
Sterling came under some selling pressure with the Euro moving back below the 1.1111 level and the UK currency was unable to hold above 1.3300 while a general Dollar advance pushed the pair to test support just below 1.3200 after the European close.
The Bank of England is widely expected to leave interest rates on hold today. The statement and vote split will be important for sentiment and medium-term policy expectations with the possibility of guidance to expect a rate hike at the November meeting. Sterling held steady in early Europe with Euro testing support below 1.0870 with a stronger than expected RICS release helping to underpin sentiment.
The US producer prices data was slightly below consensus forecasts on both a headline and core basis for August, although the annual increase strengthened to 2.4% from 1.9% previously. The data maintained expectations of a relatively subdued reading for consumer prices as food prices remained generally subdued, although energy prices increased on the month. The US currency edged lower following the data, but gained fresh support in the afternoon session following reports that the Republican tax plans would be presented in the week beginning September 25th .
The US CPI release will be important on Thursday with the US currency vulnerable to fresh selling if there is a lower than expected print while a firm reading would trigger fresh expectations surrounding a further increase in interest rates this year.
There were no significant comments from ECB officials during Wednesday with the Euro still vulnerable to some limited correction after peaking near 1.2100 against the US currency last week. The Euro traded little changed on Thursday as tight ranges prevailed against both sterling and the US Dollar.
Jean-Claude Juncker took advantage of the brightening economic prospects in the EU to push for a deepening of EU reforms ahead of European elections in 2019. He called for the Schengen free-travel area to be extended to Romania and Bulgaria, all EU states to join the euro common-currency and backed the appointment of an EU finance minister and the rolling back of national vetoes on foreign policy. Regarding trade, Juncker said he would start the ball rolling on a free-trade deal with Australia and New Zealand after recent agreements with Japan and Canada, but stressed the need for more stringent screening of foreign takeovers. Brexit was referred to as “tragic” but “not the be all and end all” as he urged the EU to take advantage of a “window of opportunity” after the German election to deepen integration.
Data wise in the Euro area today, final CPI prints for the month of August in France and Italy should be far from making a noticeable impact on the markets.
Data To Watch
07:45am EUR Consumer Price Index (EU norm) (YoY) (Aug),
12:00pm GBP BoE Asset Purchase Facility, BoE Interest Rate Decision, Monetary Policy Summary, BOE MPC Vote Cut, BOE MPC Vote Unchanged, BOE MPC Vote Hike, Bank of England Minutes,
01:30pm USD Continuing Jobless Claims (Sep 1), Initial Jobless Claims (Sep 8), Consumer Price Index (YoY) (Aug), Consumer Price Index Ex Food & Energy (YoY) (MoM) (Aug), Consumer Price Index (MoM) (Aug),
04:30pm EUR German Buba President Weidmann speech.