The British pound is showing limited movement in the Wednesday session. In North American trade, the pair is trading at 1.2864, down 0.05% on the day. On the release front, British employment numbers looked sharp. Average Earnings Index accelerated to 2.1%, above the estimate of 1.8%. Claimant Change declined 4.2 thousand, compared to an estimate of a gain of 3.2 thousand. Finally, the unemployment rate dropped to 4.4%, edging below the forecast of 4.5%. Over in the US, housing numbers were softer than expected. Building Permits dipped to 1.22 million shy of the forecast of 1.25 million. Housing Starts slowed to 1.16 million, missing the estimate of 1.22 million. Later in the day, the FOMC will release the minutes of its July policy meeting. On Thursday, the UK releases Retail Sales. There are two major events in the US – unemployment claims and the Philly Fed Manufacturing Index.
The pound lost ground on Wednesday, as British CPI remained unchanged at 2.6% in July. Inflation has dropped considerably since May, when CPI came in at 2.9%. With inflation levels weakening, the pressure has eased on the BoE to raise interest rates. BoE policymakers have been divided over monetary policy, with recent policy meetings showing a sizable majority in favor raising rates. However, BoE Governor Mark Carney has come out against raising hikes in the near future, citing continuing uncertainty on how Brexit will affect the UK economy. The BoE still sees high inflation levels ahead, saying that CPI could hit around 3% in October. This means that policymakers will have to make some tough decisions regarding interest rate policy in the next few months.
With the reality of Brexit coming ever closer, there are growing concerns in the British business sector, notably what happens on the "day after". There has been discussion about a transition period, before the actual departure date from the European Union. This would minimize the destabilizing effect of Brexit on the British economy. On Tuesday, the government said that it will seek an "interim customs agreement" with the continent, which would last up to two years. Under the proposal, Britain would enjoy tariff-free trade with the EU, while being able to negotiate free trade agreements at the same time. However, it’s questionable whether the EU, which has already taken a hard negotiating stance with Britain, will agree with such an arrangement. The two sides will meet next on August 28 for another round of what promise to be arduous talks.