Good morning,

Major currency pairs took a breather yesterday, after a volatile week which saw sterling shed gains built up over the last few months. GBP has opened the European session on the back foot already this morning, after the UK inflation rate fell to a near five year low of 0.2%. The reading for August was mainly down to the Eat Out to Help Out scheme, which saw prices in restaurants reduced for the first time with assistance from the Government. With less people heading abroad due to Covid, the price of air travel also fell, contributing to the reading.

Despite the continued bad news for sterling, a resistance level of 1.0770 appears to be holding with no moves lower as of yet, with GBPEUR finding footing towards the 1.09 mark, despite the Internal Market Bill passing through the Commons. Whilst the UK and EU  continue to negotiate, analysts are still hoping some kind of agreement can be reached towards the end of the month.

Later this evening, the Federal Reserve will hold their interest rate decision meeting. Despite it being highly likely that rates will remain unchanged, markets will be concentrating on the subsequent hour-long press conference with Federal Chair, Jerome Powell. It is expected he will follow the narrative of interest rates remaining low for an extended period of time; however, any potential policy curve balls could see USD react. Tomorrow, the UK will follow suit with the Monetary Policy Committee meeting to decide on the interest rate and policy for the UK for Q4 of the year, with the fear of negative interest rates still very much on the table.

Have a great day.

Author: Jack Nicholls, Relationship Manager

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