Sterling suffered a difficult day on Tuesday as UK inflation fell to 0% throughout August. Following a surprise increase in inflation throughout July, there was some muted belief that sterling could see some strength should inflation continue to surprise with encouraging data. However, with inflation falling flat throughout August, sterling found itself falling across the board as the need for a UK interest rate rise in early 2016 waivers. Disappointing consumer sentiment data from Germany muted sterling’s fall against the euro, although it dropped to a one-and-a-half week low versus the US dollar as investors continue the countdown to the Federal Reserve’s interest rate decision on Thursday.
Today sees the release of the ever-important employment data from the UK. Attention will be focused on the average earnings index, which indicates whether economic slack is being taken up. With wages forecast to have risen throughout the previous three months, this could increase pressure on the Bank of England to raise interest rates in early 2016.