The main headline measure of US inflation came in at 1.8% year-on-year in July, up from the 1.6% registered a month previous. Even more noteworthy, the level of core inflation, which strips out volatile priced products, is back up at 2.3%, comfortably above the Fed’s 2% target level. While uncertainty surrounding the US-China trade war is undoubtedly a concern for policymakers, core inflation above target and a labour market that is still creating jobs at a healthy pace are not conducive of an aggressive pace of monetary easing, in our view.

We even saw some encouraging news on the trade front yesterday, with the Trump administration saying it would delay the implementation of 10% tariffs on some Chinese goods, set to taken effect 1st September. While this far from guarantees a trade deal, it is a step in the right direction. Macroeconomic data out of the US is fairly light on the ground today, so much of the attention among EUR/USD traders will be on this morning’s revised Eurozone GDP numbers. Investors are eyeing unrevised quarter growth of 0.2%.

UK wage growth rises to highest level in over a decade

Sterling was little moved during the course of trading yesterday, despite a fairly solid set of UK labour data.

Yesterday’s jobs report out of the UK was pretty encouraging, continuing to suggest that domestic labour market is providing resilient to the uncertainty created by Brexit. While there was a modest uptick in unemployment to 3.9% from 3.8%, earnings growth continues to rise at a pace that far outstrips inflation. Earnings excluding bonuses rose by 3.9% yearly in the three months to June, better than the 3.8% priced in and its fastest pace in over ten years.

With inflation now around 2%, real wages are growing at approximately 2% year-on-year. This is a very solid by recent standards and should, we think, filter its way through to an improvement in UK consumer activity in the coming quarters. Next up for the pound will be updated inflation numbers out at 9:30am UK time.