A Day for Consolidation

Sterling holds steady, though fails to hold on to early gains, as the labour market remains tight, with wages increasing at their fastest pace since the financial crisis. Meanwhile, markets strike a more tentative tone, awaiting Thursday's ECB policy decision.

Previous Day's Market Highlights

Tuesday was a day of consolidation for FX markets, with the majority of major pairings settling little changed from their opening levels. The pound attempted a run higher, but ran into stiff resistance around $1.2375 before reversing course and settling unchanged against the greenback. The pound's journey was similar against the euro, struggling above the €1.12 handle before falling back. Despite failing to hold onto gains, the pound continued to strike a relatively firm tone, helped by better than expected labour market figures. Data showed the UK remaining at, or close to, full employment in July; with unemployment falling to a 44-year low at 3.8% and the employment rate reaching a joint-record high of 76.1%. The tight labour conditions have continued to exert upward pressure on wages, with average earnings (including bonuses) increasing at 4.0% on an annual basis in the 3 months to July. Such an increase represents the fastest pace since June 2008, while real wages are increasing by more than 2% for the first time in 4 years. Any gains in the pound were however capped by political uncertainties, despite Parliament's prorogation, with PM Johnson once again reaffirming his 'do or die' stance on leaving the EU by 31st October along with seemingly little progress having been made on alternatives to the Irish backstop.

Elsewhere, tentative trading conditions were in evidence, particularly in the eurozone where market participants remain apprehensive ahead of Thursday's ECB policy decision. Policymakers are likely to unveil a sweeping stimulus package in an attempt to turnaround the fortunes of the bloc's economy; though reports from ECB 'sources' indicated that restarting asset purchases could be delayed due to opposition from more hawkish Governing Council members. Barring a brief pop higher on this headline, the euro traded unchanged for most of the day. The dollar also traded within a tight range, primarily due to a lack of major economic releases. July's JOLTS job openings data showed 7.217mln outstanding vacancies at the end of the month, softer than expected and a continued moderation from recent highs. The dollar also shrugged off the firing of über-hawkish National Security Advisor John Bolton over an apparent disagreement with President Trump over Middle East policy.

Meanwhile, risk-sensitive currencies received a mid-afternoon boost on headlines that China were looking to 'sweeten a trade deal' by purchasing additional goods from the US. Both antipodeans pared losses on the reports, resulting in the Aussie and Kiwi dollars settling unchanged. Finally, the Canadian dollar gained ground, adding 0.2% and rising to the top of the FX leaderboard, with better than expected building permits and housing starts figures helping the loonie find support.

Away from FX, European equity markets traded in a cautious mood ahead of Thursday's ECB decision, the pan-continental Stoxx 600 closed 0.1% higher. US equity markets also closed largely unchanged, though investors continued to rotate away from momentum and into value stocks. Finally, oil prices lost ground, as Bolton's dismissal caused markets to price in a potentially more relaxed stance on Iran. Global benchmark Brent settled 0.8% lower, while US WTI crude shed 0.35%.

Currency Pairing 08:00 Today Vs 08:00 Yesterday Four-Week High Four-Week Low % Change
GBP/EUR 1.1190 1.1230 1.0880 3.12%
GBP/USD 1.2365 1.2385 1.1958 3.45%
EUR/USD 1.1045 1.1164 1.0926 2.13%
GBP/AUD 1.7985 1.8336 1.7792 2.97%
GBP/NZD 1.9225 1.9413 1.8826 3.02%
GBP/CAD 1.6250 1.6357 1.5956 2.45%

Today's Market Highlights

The day ahead sees a largely barren economic calendar, with markets likely to remain tightly confined to their recent trading ranges ahead of Thursday's all-important ECB policy decision.

Today's only notable releases come from the US, with the calendar highlight being August's producer price index (PPI) data. The figures, which tend to prove a useful leading indicator for the more widely-used CPI inflation measure, are expected to remain broadly similar to the previous release, continuing to show a relatively benign pace of price increases for goods leaving the factory gate. Headline PPI is expected to have increased at 1.8% YoY, while the core measure, which excludes food and energy prices, is set to have increased by 2.2% YoY; both estimates being 0.1pp above July's pace. Markets will also cast an eye over this afternoon's wholesale inventory data, with a steep increase in inventories a possible sign that US companies are hunkering down and stockpiling in preparation for a prolonged US-China trade war. Increasing inventories would also be a signal that the current weak pace of business investment is set to continue, with companies tending to drawdown on stockpiles instead of placing new orders.

Elsewhere, focus for the pound will remain on any breaking political headlines, with UK politicians seemingly already in 'campaign mode' ahead of a likely winter general election. Meanwhile, euro traders will likely be cautious once again, possibly positioning ahead of tomorrow's policy decision. Speaking of monetary policy, no notable central bank speeches are due today, with both the ECB and FOMC in their pre-meeting blackout periods.

Today's Economic Calendar

Time Currency Release Consensus Previous
1:30pm USD PPI (YoY - Aug) 1.8% 1.7%
1:30pm USD Core PPI (YoY - Aug) 2.2% 2.1%
3:00pm USD Wholesale Inventories (Jul F) 0.2% 0.2%