The British pound soared to a new 2017 trading high, after the Bank of England (BOE) minutes commented that higher inflation and a pick-up in UK growth could lead to a rate hike in “the coming months”. The Bank of England also said “some withdrawal of monetary stimulus is likely to be appropriate over the coming months” to bring inflation back down to the BOE’s two-percent target.

The Bank of England decided to keep UK interest rates unchanged at a record-low 0.25%, with the Monetary Policy Committee voting 7-2 in favour of leaving rates unchanged. The BOE also said there was a “slightly stronger picture” for the economy since its forecast last month thanks to signs of a firmer housing market, stronger employment and a rebound in retail and new car sales.

The market reaction saw the British pound move sharply higher, with the pound breaking above the £1.3600 handle against the US dollar, marking the highest trading level for sterling since June 2016. The pound also made strong gains against the euro, with the EUR/GBP pair breaking below the key 0.8990 level, which accelerated technical selling towards the 0.8800.

US advanced retail sales for the month of August came in much weaker than expected, with official figures showing -0.2%, against expectations of a +0.1% monthly increase. The previous month’s +0.6% increase was also revised lower to +0.3%. Analysts also said the negative number seen in August could be partially attributed to the recent flooding in Texas, and Hurricane Irma.

United States consumer prices accelerated in August, after a spike higher in the cost of gasoline and housing rents. The US Labour Department said that the Consumer Price Index (CPI) rose 0.4% last month, easily beating the 0.1% increase in July. August’s 0.4% CPI gain was the largest in seven months, and lifted the year-on-year increase in the CPI to 1.9% from 1.7% in July.

The US CPI report said that gasoline prices surged 6.3%, which marked the biggest gain since January, after being unchanged in July. Analysts also noted further CPI increases are likely in September, after Hurricane Harvey forced temporary closures of refineries.

The Swiss National Bank (SNB) held its policy rate steady, and slightly softened its policy language on the Swiss franc, after the currency’s sharp fall against the euro this year. The SNB left its deposit rate at -0.75%, while the target range for the three-month Libor was left unchanged at between -1.25% and -0.25%. The monetary policy statement struck a cautious tone, saying ‘Since the last monetary policy assessment, the Swiss franc has weakened against the euro and appreciated against the dollar. The Swiss franc nevertheless remains highly valued, and the situation on the foreign exchange market is still fragile’.

Economic data from the Australian Bureau of Statistics showed that domestic employment increased by 54,200 in August, boosting the Australian dollar, as the data result was well above the median forecast of 15,000 jobs to be added. Australia’s economy has now added jobs for the eleventh straight month, marking the best jobs growth streak in more than six years. The Australian unemployment rate also held steady at 5.6%, which was in-line with economist’s forecasts.

This week we see the long-awaited September US Federal Reserve interest rate decision, most analysts expect the Fed to keep interest rates on-hold at 1.25%, with U.S policy makers waiting until December to once again hike rates.

We also see the final reading of Eurozone consumer price inflation for the month of June, with the German economy also releasing PMI manufacturing data for the month of September.

The United Kingdom also releases August retail sales data, while the New Zealand economy releases second quarter gross domestic product data.

References:

http://www.bbc.com/news/business-41266528

http://www.businessinsider.com/r-us-retail-sales-unexpectedly-fall-in-august-2017-9

http://www.abc.net.au/news/2017-09-14/jobs-data-abs-employment-underemployment/8944680

https://www.reuters.com/article/uk-swiss-snb-rates/swiss-central-bank-ditches-mantra-on-franc-overvaluation-idUSKCN1BP1C7

https://uk.news.yahoo.com/pound-surges-ftse-falls-bank-211920448.html

https://www.investing.com/economic-calendar/