The main economic data that were in focus today included UK inflation, German ZEW economic sentiment and US retail sales.
UK CPI in August was flat at 0.0% on an annual basis, coming as expected but down from 0.1% in July y/y. Core CPI which strips out the price of energy, food, alcohol and tobacco, came in at 1.0% y/y but down from 1.2% in July.
With consumer price inflation being soft, there is little immediate pressure on the Bank of England to start raising interest rates. As a result, this led to a selloff in the pound, which slid against the dollar after the data to reach a low of 1.5381 from a session high of 1.5456. Wednesday’s UK employment data now come into focus.
Weaker German ZEW economic sentiment data barely affected the euro, which traded mostly in a range between 1.1283 and 1.1328. The index fell to 12.1 in September, the weakest since November 2014. However, this was offset by an improvement in the current conditions index. Meanwhile, more positive Eurozone employment change numbers and trade balance data gave additional support to the euro.
The yen was one of the best performing currencies especially against the dollar, as it strengthened following the Bank of Japan policy meeting and announcement that it held policy steady. This pressured the dollar to break below the key psychological 120 yen level. A European session low of 119.39 was reached before a bounce later. Meanwhile, a raft of US data also helped support the dollar.
While US retail sales data missed forecasts, what markets saw as positive were the upward revisions to the previous numbers. Overall retail sales rose 0.2% in August m/m, below the 0.3% expected but July was upwardly revised to 0.7% from 0.6%. The core figure, (the control group, which excludes automobiles, gasoline, building materials and food services) increased 0.4% in August after a revised 0.6% gain in July (from 0.3%).
The US also published the September Empire State Manufacturing index which was a disappointment and fell more-than-expected and the August industrial production data also fell a seasonally adjusted 0.4%. However, the market shrugged off these data points as the retail sales revisions were more important. The next data to focus on before the all-important FOMC decision on Thursday will be tomorrow’s US CPI data.