Today's news headlines: 

‘Rishi Sunak to set out new fiscal rules to rein in UK borrowing’. The UK Chancellor is expected to set out new borrowing measures in October amid fresh concerns of any future interest rate hikes. It’s expected that a 1% rise in both inflation and interest rates could cost the Treasury almost £25bn in debt financing costs. After months of tension between Number 10 and the Chancellor, the fiscal plan has pulled the two sides together, with the Prime Minister most notably backing the proposed tax increases to fund the £12bn per year support package for the NHS. The move will also see an end to borrowing for day-to-day spending within three years, at which time tax revenues will offset these costs as the country scales back spending after the Coronavirus pandemic. (Financial Times)

‘Unpublished ECB inflation estimate raises prospect of earlier rate rise’. Unpublished reports by the European Central Bank suggest the 2% inflation target could be met by 2025, one year earlier than analysts predicted. The first interest rate hike is expected to be just over two years from now, which could see the deposit rate move back to baseline from -0.5%. Markets have priced in a rate rise from the Federal Reserve next year with many believing the ECB is much further behind. A former ECB official has stressed the importance of waiting for the official forecasts, suggesting these reports are merely one piece of the puzzle and don’t provide all the context that’s needed. (Financial Times)   

Today

US markets moved lower yesterday after the latest retail sales data and negative surprise in jobless claims, the S&P 500 closed 0.16% lower. Cable is muted this morning, with the $1.38 handle providing some resistance in early trading. EUR/USD has ticked higher, up around 0.10% in the early hours.

Events

UK Retail Sales m/m: -0.9% vs -2.8% last month
UK Consumer Inflation Expectations: 9:30AM
Eurozone final Consumer Price Index and Core CPI y/y: 10:00AM
US Preliminary University of Michigan Consumer Sentiment: 3:00PM
US Preliminary UoM Inflation Expectations: 3:00PM

Interbank rates:

GBP/USD – 1.3795
GBP/EUR – 1.1720
EUR/USD – 1.1772
USD/CAD – 1.2660

The markets are moving. To speak to our team, please call +44 (0)20 3465 8200.