UK Labour Market Continues to Improve

Data just released indicated that the domestic unemployment rate and the number of people claiming jobless benefits continued to drop, thus suggesting that the nation’s labour market has sustained its recent positive performance. Additionally, the minutes of the latest BoE policy meeting revealed that two MPC members continued to vote for a rate hike, however, it remains to be seen if the debate intensifies in the upcoming meeting. However, market reaction to the domestic macro data is muted amid uncertainty surrounding tomorrow’s Scottish referendum. Although the US Fed is expected to announce another round of tapering and move closer to conclude its QE programme, markets will scrutinise the post-meeting statement to see whether the central bank makes any changes to its forward guidance.

Pound Sterling – UK Markets

Domestic labour market seems to be recovering at a steady pace, as evident by the just released labour market report, which indicated that the unemployment rate in the nation dropped for the sixth consecutive month to 6.2% for the three months period ended July and the number of people claiming jobless benefits continued to decline at a faster pace for August. Furthermore, the BoE policy meeting minutes indicated that two MPC members, Martin Weale and Ian McCafferty, continued to press their case for an immediate hike in interest rate, although the majority kept their stance unchanged. With the start of an improvement in wage growth as apparent by today’s data, it remains to be seen if other policy members alter their views on the timing of an interest rate hike in the upcoming policy meeting. Meanwhile, uncertainty associated with tomorrow’s Scottish independence vote has kept investors anxious, especially after an overnight poll survey once again showed the “No” campaign leading the board. Data released yesterday indicated that UK consumer price inflation eased for August, matching the lowest reading in five years.

US Dollar – US Markets

The greenback weakened against the majors yesterday amid media reports that the Fed might keep interest rates low for a considerable period of time. The release US producer prices data had little impact on the US Dollar as inflation remained flat for August, in line with market expectations. This has shifted focus onto today’s consumer price inflation data to verify if weak gasoline and food prices have resulted in an easing trend for August. The US Dollar is looking for direction against the majors this morning ahead of the crucial US Fed two-day policy meeting outcome scheduled later today. The central bank is expected to announce another reduction of $10 billion to its asset purchase programme. Additionally, markets will keep a tab on the post-meeting statement to gauge any changes to the Fed’s forward guidance on interest rates. However, the possibility of an unchanged stance cannot be ruled out, considering softness in the latest employment and manufacturing production figures. Markets are most likely to be kept in a guessing mode until the next policy meeting in October when the Fed is expected to end its bond buying programme.

Euro – European Markets

The Euro lost ground against the Pound yesterday following the release of soft ZEW confidence data in the Euro zone. The report revealed that investor sentiment remained subdued in the region amid prospects of deeper macroeconomic troubles due to the recent EU sanctions imposed against Russia. Additionally, additional stimulus measures introduced by the ECB in its latest policy meeting failed to boost risk appetite, as markets remained concerned about the weak pricing climate transforming into an outright deflation in the Euro zone. Meanwhile, the Euro is trading in a tight range against the majors this morning. The final Euro zone consumer inflation report for August scheduled later today is unlikely to generate much market attention as it is not likely to lessen pressure on the ECB from initiating its bond buying programme next month. Additionally, Ukraine ratified its political and trade association with the EU after agreeing to Russia’s demand to grant special status to some Eastern regions which might pave way for peace in Eastern Europe and provide some support to the Euro.

Other Currencies – Highlights

The Canadian Dollar gained ground against the greenback in yesterday’s trading session following the release of upbeat Canadian manufacturing shipment numbers for July. Data showed that industrial shipments rose at its strongest pace since February 2013 due to higher demand for motor vehicles and primary metals. Additionally, the Bank of Canada Governor, Stephen Poloz, indicated that as growth in exports and business investment replace the current household spending led growth, the economy will return to its natural growth track. Furthermore, he indicated that exports from the nation are anticipated to improve as business investments in the US are increasing at a robust pace. With little on the domestic macroeconomic front, the Canadian Dollar will take direction from the US consumer inflation report scheduled later today. Additionally, with the US Fed policy meeting later today, traders will keep a tab on the post-meeting statement for further direction to the US Dollar-Canadian Dollar pair.