Currencies open little changed this morning as yesterday’s data releases, UK Unemployment and EU Industrial Production, failed to set pulses racing and kept the major currencies trading in tight ranges. A raft of data releases today provide the potential for some increased volatility. UK Retail Sales will help build a picture of coincident economic activity in the wake of Brexit. US Retail Sales will also be released in the afternoon, providing an indication of economic activity stateside ahead of next week’s Federal Reserve meeting. However, the highlights today will be EU CPI at 10am followed by the Bank of England Rate decision at noon.
With the key PMI indices having bounced back in August and none of the official figures covering trade, wages and unemployment raising the alarm it is highly unlikely that the MPC will be prompted to change the base rate from 0.25% However, of most interest to the markets will be whether the projections the Bank made in August. The MPC saw scope for another rate reduction this year should economic activity match their reduced expectations. Mark Carney last week acknowledged that there is upside risks to the Bank’s forecast of 0.1% growth in the third quarter and an adjustment higher has the potential to provide support for sterling.
Elsewhere, Italy’s government will meet on Sept. 26 to decide the date of a national referendum over whether to accept or reject a constitutional reform passed by parliament with the date of the vote expected to happen between November 15 and December 5th. The future of Renzi’s government may hinge on the outcome of the referendum and opinion polls suggest the outcome is currently too close to call. With concerns over the Italian banking system already well documented, political instability will increase the risk around the euro and is a medium term risk for the single currency running into the year end.