A raft of positive UK economic data meant that sterling was the big outperformer on the FX markets yesterday. Wage growth hit a six-year high, whilst unemployment beat expectations, edging down by 0.1%. The positive outlook and comments from BOE Governor Carney that the UK economy was operating above its trend rate of growth fuelled expectations that there will be a rate rise before the end of the year. GBP jumped by over a cent against the EUR as a result and from the mid-1.53s to over 1.55 versus the dollar. News of a possible mega-merger between the UK brewer SABMiller and AB Inbev to form the world’s largest brewing company also gave the FTSE a boost, with the index advancing by 1.5% and SABMiller itself surging 20% higher.
Asian markets also enjoyed a boost as rumours of further Chinese stimulus resulted in a late rally for Chinese shares. The Shanghai Composite ultimately finished higher by 4.9%
To complete the positive picture, US markets also ended the day higher, boosted by the strong performance of energy stocks following a 4% surge in Bent crude, as weekly US inventory numbers unexpectedly registered a significant drop. The benchmark S&P 500 ended 0.8% higher, and the Canadian dollar was another strong performer off the back of these numbers. Focus remains firmly on the US economy, however, as CPI inflation for August showed that the US dipped into outright deflation, with prices falling 0.1% versus the 0.0% expectations. This will complicate matters somewhat for the Fed, and though the fall in consumer prices was attributed to sinking fuel prices, it was enough to dampen recent USD momentum and give gold some support.
Thus far today, UK retail sales have printed in line with expectations and the Swiss Central Bank announced that rates will remain unchanged. All eyes this evening will be on the Fed for the interest rate announcement following the September FOMC policy meeting. It has been widely expected that the September meeting could mark the first interest rate rise and the end of this exceptional period of ultra-loose monetary policy. Analysts are largely divided over whether today will be the day or whether the weak CPI inflation numbers may just be enough to put the Fed on hold until the next meeting. The Greenback has remained in a tight range ahead of the announcement, against both GBP and EUR, as markets collectively hold their breath!