What’s been happening?

Pound Sterling – UK Markets 

The British pound rose against the euro on Tuesday but posted modest losses versus the dollar following the mixed labour market data from the UK.

The Office for National Statistics (ONS) reported that the unemployment rate in the second quarter of the year rose to 3.9% from 3.8% but the claimant count change in the same period came in at 28,000 to better the market expectation of 32,000. Regarding the wage inflation, “Estimated annual growth in average weekly earnings for employees in Great Britain increased to 3.7% for total pay (including bonuses) and 3.9% for regular pay (excluding bonuses),” the ONS reported. Commenting on the data, British Finance Minister Sajid Javid argued that the jobs statistics were another sign that the fundamentals of the UK economy were strong.

Later in the day, British Prime Minister Boris Johnson told reporters that a trade deal with the United States will be a “tough old haggle” while reiterating that the biggest deal that they need to achieve was with their friends and partners “over the channel.” 

US Dollar – US Markets

The dollar posted strong gains against its major rivals on Tuesday supported by the sharp increase witnessed in the US Treasury Bond yields and expectations of the Federal Reserve not looking to make large rate cuts amid easing concerns over the potential negative impact of the US-China trade dispute on the economy.

The US Trade Representative’s Office announced that the Trump administration decided to delay additional tariffs on some Chinese imports, including a large variety of consumer electronics such as laptop computers, monitors and game consoles, until December 15 to help the risk sentiment turn positive on Tuesday. Commenting on this development, "China would very much like to do something on trade," US President Donald Trump said. "Delayed tariffs for Christmas season in case it had an impact on shopping." 

Earlier in the day, the data published by the US Bureau of Labor Statistics (BLS) revealed that inflation, as measured by the Consumer Price Index (CPI), rose 0.3% on a monthly basis in July following June's reading of 0.1% and lifted the annual rate to 1.8% compared to analysts' estimate of 1.7%. Further details of the publication showed that the core CPI, which strips food and energy prices, matched June's reading of 0.3% on a monthly basis and rose to 2.2% in the last 12 months to beat the market expectation of 2.1%.

Euro – European Markets

The shared currency felt the weight of the disappointing macroeconomic data releases from both Germany and the eurozone on Tuesday. The ZEW Economic Sentiment Index in Germany dropped sharply to -44.1 in August to miss the market expectation of -21.7 and the same data for the eurozone slumped to -43.6 from -20.3 in July. Furthermore, the Current Situation Index in Germany fell to -13.5 from -1.1. Other data showed that the Consumer Price Index in Germany came in at 0.5% and 1.7% on a monthly and yearly basis, respectively, as expected.

Assessing the sentiment data, “The ZEW Indicator of Economic Sentiment points to a significant deterioration in the outlook for the German economy," said ZEW President Professor Achim Wambach.

"The most recent escalation in the trade dispute between the US and China, the risk of competitive devaluations, and the increased likelihood of a no-deal Brexit place additional pressure on the already weak economic growth. This will most likely put a further strain on the development of German exports and industrial production.”

What’s coming up? 

UK: The UK’s Office for National Statistics (ONS) will release the inflation report on Wednesday that will include the Consumer Price Index, Producer Price Index, and Retail Price Index figures. 

US: The only data release from the US will be the Import and Export Price Index.  

EU: The European economic docket will feature second-quarter economic growth figures from the eurozone and Germany. Eurostat will publish the Industrial Production and Employment Change data as well.