terling leapt back above the 1.32 mark versus the greenback yesterday morning on the news that earnings growth in the UK rose to its highest level in nearly a decade in the year to August. Wage growth excluding bonus’ jumped to 3.1%, comfortably above the 2.8% that economists had pencilled in. This marked its strongest reading since December 2008 and the height of the financial crisis, while remaining comfortably above the level of inflation. This provides a further sign that the Bank of England could raise interest rates again at some point in the first half of next year, contingent on the state of Brexit.

On the topic of Brexit, this week’s EU meeting continues to look increasingly unlikely to yield an exit agreement, with both sides still at odds over a number of key issues, namely the state of the Irish border. European Council president Donald Tusk seemingly poured cold water over the chances of an agreement this week, stating that he had ‘no grounds for optimism’.

The two-day EU summit will officially commence today, although it appears unlikely that enough progress will be made to ensure a final agreement is forced through. FX markets will instead be bracing for the possibility of an emergency summit being called for November in order to iron out the final details of an agreement.

Emerging market currencies rally on stock market rebound

With economic and political announcements relatively light across the pond, the EUR/USD rate spent much of trading on Tuesday relatively range bound. The main moves instead came out of emerging market currencies almost all of which, led by the South African Rand and Turkish Lira were able to eke out gains against the greenback. A move back upwards in global stock markets lead to a ‘risk on’ mode, where investors favoured the riskier emerging market currencies over those major currencies deemed as ‘safer’.

This morning’s Eurozone inflation numbers and this evening’s Federal Reserve meeting minutes could shift EUR/USD today. The headline Eurozone inflation number is expected to remain unrevised, although economists’ have pencilled in a modest upward revision in the core CPI number to 1.0% from 0.9%. As for the Fed, we expect the minutes to highlight growing confidence among the committee over the inflation outlook and strong labour market, while pointing to another interest rate hike in December.