Sterling recovers some ground

It was a reasonably quiet start to the week in FX markets yesterday. Sterling did recover ground against both the euro and the dollar and it is holding onto these gains this morning following somewhat firmer than expected labour market data in the UK released a short while ago, trading at around 87.1p and $1.2280 respectively.  The euro is little changed against the dollar at $1.07.

Sovereign bond yields ended broadly flat yesterday but are nudging down a little this morning, while in  equity markets, European stocks advanced by almost 1% with US indices ending unchanged to slightly lower on the day.

Wage inflation in the UK eased a little in the third quarter with the year-on-year increase in whole-economy average weekly earnings slowing to 7.9% from 8.2% in the three months to August, though this was well ahead of the consensus forecast of 7.3%. Underlying earnings growth, which excludes bonuses, also eased in Q3, to 7.7% (in line with expectations) from 7.9%, with private sector wage growth – a particular focus of the Bank of England – slowing to 7.8% from 8.2%.

The focus for markets today will be very much on the October CPI inflation report, particularly after Fed Chair Powell saying last week that the central bank is “not confident” that monetary policy is “sufficiently” restrictive to return inflation to the 2% target. The consensus expects headline inflation to have resumed its descent last month – it is seen falling to 3.3% from 3.7% in September – while core inflation is expected to have remained at 4.1%.

Other economic data due today include third-quarter GDP (2nd estimate) and employment in the Euro area, and the small business optimism index in the US.