Economic Calendar

9:30am UK Government Borrowing Data

1:30pm US Jobless Claims

Analysis

GBP/EUR was a significant mover on Wednesday with notable net gains as set-piece events on both sides of the Atlantic triggered increased volatility.

August UK retail sales data was significantly stronger than expected with a 1.0% increase compared with consensus expectations of a 0.3% gain. There was also an upward revision to July’s data with the year-on-year increase at 2.4% from 1.4%.

Prices increased 3.2% over the year, the strongest reading since 1992, which will tend to maintain pressure for the Bank of England to increase interest rates.

As expected, the Federal Reserve maintained interest rates at the 1.00-1.25% range following the latest policy meeting.  In the statement, risks to the economy again appeared roughly balanced while inflation was being monitored closely. Job gains had remained solid while business spending had picked up.

The FOMC announced that it would start shrinking the balance sheet in October, in line with the schedule laid out in July.  According to projections from individual members, 11 of the 16 members were expecting a further 0.25% rate increase this year with a further three rate increases during 2018. The Fed Funds projections were slightly more hawkish than expected. In this environment, the chances of a further rate increase in 2017 increased to around 70% from around 50% which boosted the dollar.

The latest UK government borrowing data will be released on Thursday, although political rumours ahead of Friday’s speech from Prime Minister May are liable to have a larger domestic Sterling impact with dollar moves also crucial.

US initial jobless claims and Philadelphia Fed manufacturing survey are scheduled, although the impact is likely to be measured with markets still digesting Wednesday Federal Reserve policy statement and assessing yield expectations.

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