At home, data just released has indicated that the annual consumer price inflation in the UK slipped back to zero for August after edging marginally higher in the previous month. The data has raised some questions on the UK policymakers’ positive view on the domestic economy despite the unfavorable external environment. Markets will now eye tomorrow’s jobs data to verify if the global economic turmoil had any adverse effect on the UK labour market.

In Europe, the ZEW sentiment indices in Germany and Euro zone will provide indication on the effect of the Greek crisis on the morale of consumers and businesses in the region. Across the Atlantic, today’s retail sales and industrial production data will be in focus.

Pound Sterling – UK Markets

The Pound has shown little reaction against the US Dollar and the Euro this morning following the release of the consumer price inflation report. Data showed that the annual consumer price index slipped back to zero for August following an unexpected rise in July, in line with market expectations. This has heightened speculation that the BoE might postpone the rate increase further into next year. However, in the previous week, the minutes of the latest monetary policy indicated that though the recent chaos in the Chinese stock market had weighed on the global economic sentiment, the outlook for the UK economy remains upbeat. Market participants have now turned their attention on to the jobs data scheduled tomorrow for further direction. Any upside surprise in tomorrow’s data might help in providing some relief to Sterling investors, particularly considering today’s unimpressive inflation data.

Apart from domestic economic data scheduled during this week, the US Fed’s interest rate decision due on Thursday has the potential to sway market sentiment in the Pound against the majors.

US Dollar – US Markets

The US Dollar is trading broadly flat against the major currencies, as investors tread cautiously ahead of the US Fed’s monetary policy meeting due later this week. Later today, US retail sales data would be keenly eyed which is expected to show that retail sales grew at a slower pace for August as compared to the previous month. The report is likely to provide further insights into whether US consumers are picking up pace with respect to their spending patterns. Additionally, industrial and manufacturing production data due later today will be in focus which is expected to show a contraction for August. The softness in today’s economic data could play on the minds of US Fed policymakers at the two-day policy meeting commencing tomorrow.

In the absence of major global economic news yesterday, the greenback held on to its gains against its majors. Market sentiment remained subdued amid concerns surrounding the recent mixed economic reports from the US and the turmoil in global financial markets.

Euro – European Markets

In today’s trading session, the Euro has reversed its yesterday’s gains against the US Dollar ahead of the crucial US Fed interest rate decision scheduled later during the week. Meanwhile, investors have turn their attention towards the release of ZEW survey readings from Germany and Euro zone due later today which is expected to show a slight deterioration in sentiment for September as persistent Greece exit concerns continued to weigh on the confidence of consumers and businesses in the region. Additionally, the Euro bloc’s trade data will attract considerable market attention and is likely to show that trade surplus of the region narrowed for July.

Yesterday, the common currency lost ground against the greenback, despite data showing that Euro zone’s industrial production for July rose at the fastest pace since February, buoyed by higher volume of energy, capital and durable consumer goods. Another report revealed that Italy's consumer price inflation remained unchanged for the second consecutive month for August, in line with market expectations.

Other Currencies – Highlights

The Australian Dollar is trading lower against the greenback this morning after the RBA minutes of the latest monetary policy released earlier today revealed that the Australian economy continued to face downside risks, citing slowdown in the Chinese economy and increased market volatility. Additionally, the central bank stated that the depreciation of the Aussie Dollar on the back of significant declines in key commodity prices would support growth, particularly through increased contribution from net service exports. Furthermore, the central bank acknowledged the improvement in demand for labour in the economy, predominantly in services, however the central bank highlighted that “spare capacity remained and wage pressures continued to be weak”. The members of the RBA asserted that the chances of the Fed increasing its rates at its September meeting has receded substantially due to the recent volatility in global financial markets.

With little on the domestic macro calendar during the week, market attention will be focused on the FOMC policy decision scheduled on Thursday for further direction to the Aussie Dollar against the majors.