Investors have taken today’s UK labour data positively, with Sterling moving sharply higher against both the Euro and the greenback. Data showed that the ILO unemployment rate surprisingly dropped while the average weekly earnings rose more than expected for three months to July, thereby instilling confidence about the future growth prospects of the nation. Today’s data should also bring some cheer to the BoE policymakers, especially considering their recent upbeat assessment of the economy.

Across the Atlantic, the Fed begins its two-day monetary policy meeting today, with the outcome scheduled tomorrow. Markets will watch whether today’s inflation data in the US provides some relief to the Fed officials, considering the recent weak domestic economic data and global economic concerns.

Pound Sterling – UK Markets

The Pound has moved sharply higher against the US Dollar and the Euro this morning following upbeat UK labour market data. Reports revealed that the average weekly earnings growth accelerated more than market expectations for three months to July, thereby boosting confidence in the health of the UK economy and heightening speculation that the BoE might normalise monetary policy sooner than expected. Additionally, data showed that the three month average ILO unemployment rate dropped surprisingly for July. Today’s data has provided some relief to Sterling investors, considering the recent spate of weak domestic economic data and the recent financial turmoil in China which has threatened to derail the global economy.

Going forward, markets will keep a close eye on tomorrow’s UK retail sales data which is expected to show a slower pace of growth for August. Additionally, tomorrow’s outcome of the US Fed’s monetary policy meeting will be in spotlight, with a potential to stir volatility in forex markets.

US Dollar – US Markets

In yesterday’s trading session, the US Dollar traded on a firmer footing against the major currencies after data revealed that retail sales in the US edged higher for August, helped by gains in auto sales along with spending on restaurant meals, groceries and clothing. The retail sales report showed that consumer spending in the world’s largest economy was accelerating at a fair pace, thereby providing some ammunition to a cautious Federal Reserve to increase interest rates at its monetary policy meeting on Thursday. However, another data revealed that industrial production in the US fell more-than-expected for August.

In today’s trading session, the greenback has continued its upward trend, as investors keenly await consumer price inflation data which is expected to remain steady for August, as soft energy prices and a modest decline in core commodities prices is expected to offset higher food and non-energy services costs. However, most of market attention is focused on tomorrow’s Fed policy decision to ascertain whether the central bank would start the normalisation process or wait for few more months to raise its key interest rates.

Euro – European Markets

The Euro is trading on a weaker footing against the majors, ahead of the final reading of Euro zone’s consumer inflation data for August. With the ECB apparently moving towards a more accommodative stance and possibly looking to increase its stimulus programme, any revisions to the preliminary inflation reading could influence trading trends in the common currency against its major counterparts. Yesterday, the ECB Governing Council member, Ewald Nowotny, stated that the central bank’s quantitative easing programme might be broadened or extended, as low inflation in the region continued to pose a hindrance for the central bank.

Yesterday, the Euro lost some ground against the US Dollar, after data showed that the German ZEW investor confidence index for September more than halved and hit the lowest level in ten months, as weakness in emerging markets diminished the outlook of exports for the Euro zone’s largest economy. On similar lines, Euro zone ZEW economic sentiment registered a more-than-expected drop for September.

Other Currencies – Highlights

The Australian Dollar has reversed its yesterday’s losses and is trading on a stronger footing against the US Dollar. This morning, RBA’s Assistant Governor, Guy Debelle urged the financial markets to be ready for a rate increase decision by the Federal Reserve and highlighted that bond market participants will need to be prepared for a decline in liquidity. Further, Debelle opined that the medium-term growth for the Australian economy may have slowed partly due to the recent slowdown in population growth. Meanwhile, the leading index of economic activity, as measured by the Westpac-Melbourne Institute, indicated Australia’s economic growth was decelerating. Market shrugged off comments by RBA’s Assistant Governor as well as the reading on the leading index and the AUD has surged amid a rise in risk appetite.

With little on the domestic macro calendar during the week, trading trends in the Australian Dollar would be determined by the crucial FOMC meeting scheduled tomorrow.