Pay growth catches up with price rises for the first time in nearly 2 years.

GBP – Wage growth has caught up with rising prices for the first time in nearly two years. Regular pay, excluding bonuses, rose by 7.8% in May to July compared with a year earlier, matching the pace of inflation over the same period. However, the unemployment rate rose to 4.3% in the three months to July from 4.2% a month earlier, and job vacancies fell again, to below a million.

With the Bank of England Interest rate decision next week, Catherine Mann, one of the Bank of England rate setters has signaled she will back a further interest rate hike at next weeks meeting after warning about the possibility of inflation persistence. Mann said “the risk of tightening too little is more salient” than tightening too much. “To pause or to hold the policy rate lower for longer risks inflation becoming more deeply embedded, which would then require more tightening in total, to both change inflation itself and to wring-out the embedded inflation that comes from the sustained duration above target,” she said. With some key data points between now and next Thursday, markets will be wanting to gage how the Bank of England will go forward off the back of them.

EUR – On the EUR front today we have Spanish Inflation data expected to print 2.4%. Elsewhere in the EU we have German and EU ZEW Survey economic sentiment which are both expected to print figures below the previous as well as being heavily negative leaving the potential for EUR weakness. Most EU data points will be key in the build up to their interest rate decision next week which is expected to pause, although a 25bps hike is still on the cards.

USD – Last week’s employment data played into that narrative, showing the job market remained robust, though not strong enough to spark worries that the Fed would need to hike interest rates more to fight inflation. inflation data next week may need to strike a similar balance, investors said. Too high a number could fan fears of the Fed leaving interest rates higher for longer or hiking them more in coming months. s. The U.S. central bank is widely expected to hold benchmark rates steady at its Sept. 20 meeting. Markets are also pricing in a nearly 44% chance of a rate hike at the Fed’s Nov. meeting, up from 28% a month ago.

Elsewhere in the world Kim Jong Un has travelled to Russia prompting the US to warn against selling arms. With tensions already at the highest levels since the cold war, this will only add fuel to the fire. During times of uncertainty we can see USD strength as people flock to the dollar as a safe haven.

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