Yesterday's UK labour market data should play into the Bank of England's hands as the unemployment rate surprisingly fell and wage pressures eased at the same time. The Pound Sterling (GBP) initially benefited from these figures, but was unable to hold on to all of its gains against the Euro. This should come as no surprise, as the inflation figures are likely to be more important for the GBP this week, starting with July's inflation figures today, Commerzbank’s FX strategist Michael Pfister notes.

Inflation may be a positive signal for the GBP

“The Bloomberg consensus expected the core rate to fall slightly year-on-year, and so it happened, but this was likely due to a base effect as a sharp rise in July last year is no longer included in the calculation.”

“And there were good reasons for this view. For example, house prices have recently risen more strongly than before and the real economy appears to be continuing its slow recovery, which argues for stronger inflationary pressures. Moreover, most of the recent disinflation in the core rate has come from durable goods, and the trend there has reversed in recent months. We see similar trends in other countries.”