Dollar firmer

The dollar has gained some ground amid rising US bond yields, strengthening to around $1.0660 and $1.2230 against the euro and sterling respectively. This sees EUR/£ largely unchanged at 87.2p, with this morning’s GDP data in the UK leaving the pound unmoved.

US bond yields remain very volatile. They backed up quite sharply yesterday – by the best part of 15bps to 4.63% in the case of 10-year yields – with hawkish comments from Fed Chair Powell contributing to the move higher. Equity markets in the US closed lower, shedding almost 1% on the day.

In remarks yesterday, Fed Chair Powell said the central bank is “not confident” that interest rates are at  a “sufficiently restrictive” level to return inflation to target, adding that “if it becomes appropriate to tighten policy further, we will not hesitate to do so.” He did also say, though, that the Fed “will continue to move carefully”, suggesting it is inclined to keep rates where they are for now.

The UK economy stagnated in Q3, with GDP flat in the quarter having risen by 0.2% in Q2 and by 0.3% in the first quarter of the year. Higher interest rates look to have taken a toll on consumer spending and business investment, both of which fell in the quarter, though this was offset by an increase in net exports. The Q3 outturn was slightly better than the consensus forecast, but in line with the Bank of England’s expectations, while the latest survey data suggest GDP will be at best flat again in Q4.

Economic data due today include the University of Michigan’s consumer confidence/inflation expectations survey in the US, while a few Fed members are scheduled to speak.