Fed decision hangs over emerging markets

September 15th: Highlights

• UK CPI in-line with forecasts
• German ZEW falls short
• US core Retail Sales due later

Sterling Comment

Today saw UK Consumer Price Index (CPI) data come out in-line with forecast. This is the preferred inflation measure used by the BoE. Inflation has ground to a halt, dropping to zero for the annual reading.

Sterling has been fairly subdued against major counterparts recently, as focus moves towards the US Fed decision. Markets expect the Bank of England to maintain its accommodative monetary policy until early next year.

GBP/USD is currently trading trades at 1.5410.

Global Comment

Yesterday’s market was very subdued ahead of this week’s main event – the Federal Reserve meeting. After a decline in unemployment to 5.1%, the labour market still makes a case for a September rate hike, but the Fed are failing on the price stability leg of their mandate, with inflation standing at 0.3% and core inflation falling to 1.2%. Opinion is still split and USD weakened slightly as expectations of an interest rate rise have waned as a growing camp expect a rate hike to be pushed back until December. The implications of a rate hike are concerning Emerging Markets, due to the affect a higher interest rate would have on their USD-denominated debt.

JPY gained from the inaction of the BoJ, with no change to interest rates and QE continuing.

AUD is slightly weaker today as markets digest the impact of the surprise change in leadership, as Prime Minister Tony Abbott was ousted on Monday. RBA voiced concerns over China and the issues faced by new PM, Malcolm Turnbull.

Have a great day!