No-Deal Concerns Overshadow Wage Growth

GBP

Sterling held near its recent lows on Tuesday as concerns about a no-deal Brexit dominated sentiment despite data showing wage growth in the United Kingdom rose to an 11-year high. Yesterday’s labour force survey showed the market had unexpected strength in the second quarter with total earnings growth, including bonuses, rising by an annual 3.7% in the three months to June, the highest rate since June 2008.

The recent strong labour data could put pressure on the Bank of England to hold interest rates. Presently, money markets give a 68% chance of a one quarter point rate cut by end-December.

USD

Consumer prices in the US rose more quickly than expected in July as gasoline reversed a two-month decline and the cost for rent continued to climb. However, the rise in inflation will likely do little to change expectations that the Fed will cut interest rates again next month amid worsening trade tensions. The consumer price index for all items was up 0.3% for the month, against expectations for a 0.2% increase as the figure was lifted by gains in the cost of energy products and a range of other goods, the Labour Department said. Analysts have been watching the inflation data closely for clues about what the Federal Reserve will do in the days ahead. The U.S. central bank is widely expected to drop its benchmark overnight lending rate another 25 basis points in September after cutting for the first time in 11 years at the July meeting.

News that U.S. and Chinese officials had held a telephone call to discuss tariffs and planned another call in two weeks helped ease concerns about the U.S.-China trade war and sent global risky assets rallying.

Key Announcements

09.30 – GBP: Consumer Price Index; expected to decrease to 1.9%