- US Retail Sales came in a touch stronger yesterday, but markets remain uncertain of the size of the Fed’s first rate cut in over four years. August Retail Sales were 0.1% against expectations of -0.2% with increases in miscellaneous stores, non-store retailers and health & personal care. The data suggests that spending is increasing with consumers possibly less concerned about the cooling labor market. We were hoping that the release may give us a clearer signal ahead of today’s FOMC policy announcement, but markets remain split on a 25bp or 50bp cut. FWIW, your FXPerts here at GPS yesterday voted about the outcome of today’s meeting with 67% suggesting a 25bp reduction and 33% calling for 50bp. As well as voting on policy today, officials will release fresh quarterly projections, which will offer further insight into the path of interest rates in the coming years.
- Data released this morning showed that UK inflation rose 2.2% in August, unchanged from July and inline with expectations. The print is within touching distance of the BoE’s 2% target and leaves the door open to further interest rate cuts from the central bank. Services inflation, which is an ongoing concern for rate setters rose to 5.6%, up from 5.2% however the uptick was anticipated and expected to be a temporary blip. The data is unlikely to prompt officials on the MPC to deliver a rate cut this week, however markets are currently pricing reductions in November and December with up to five more expected in 2025. The pound immediately rallied after the release pushing GBPUSD 20 pips higher. However, the pair remains off its recent highs as investors remain reluctant to build significant positions ahead of this evening’s FOMC decision.
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