Dollar weaker ahead of Fed meeting

The dollar has weakened as the Fed begins its two-day monetary policy meeting today and ahead of a batch of US economic data this afternoon, while UK labour market data released a short while ago were broadly as expected and haven’t had any impact on sterling. The pound and euro are both firmer against the US currency, trading at around $1.3645 and $1.18 respectively (versus yesterday morning’s levels of about $1.3580 and $1.1735). EURGBP remains very tightly range-bound, trading in and around £0.8650 again this morning.

Government bond yields fell and stocks rose ahead of the Fed meeting. The decline in yields was modest with US, German and UK 10-year yields all around 3-4bps lower on the day. In equity markets, the S&P 500 and Nasdaq gained 0.5% and 0.9% respectively to close at new record highs, while European stocks added almost 1%.

This morning’s labour market report in the UK shows the number of payrolled employees – based on HMRC data – fell by 8k in August to bring the decline over twelve months to almost 130k, though separate labour force survey data within the report points to an increase in total employment over the year to July. The unemployment rate in May-July was 4.7%, unchanged from April-June but up slightly from 4.6% in the February-April period. Private sector earnings growth – which the Bank of England monitors particularly closely – continues to edge down, dipping to 4.7% year-on-year in the three months to July from 5.2% in the three months to April.

ECB member Schnabel struck a relatively hawkish note in comments yesterday, She noted that “upside risks to inflation dominate, with tariffs, services inflation, food inflation and fiscal policy as potential drivers,” arguing therefore that “monetary policy should keep a steady hand.”

There is quite a heavy schedule of economic data today, including industrial production and labour costs in the Euro area; the ZEW investor confidence index in Germany; and retail sales, industrial production, and import prices in the US.