Dollar under a little pressure

The euro and sterling are both firmer against the dollar this morning as they re-visit last week’s post-US inflation data highs, trading at around $1.0870 and $1.27 respectively. The pound is also slightly firmer vis-a-vis the single currency trading at around 85.6p, at the start of an important enough week for UK economic data with the CPI inflation report for April due on Wednesday.

Government bond yields continued to edge higher on Friday as they reversed a bit more of the decline that occurred following the US inflation data. They still finished lower on the week overall though with US 10-year yields closing at 4.42%, down from 4.50% at the end of the previous week and down around 30bps from their 2024 high to date of just over 4.70% at the end of April.

Equity markets had a mixed session on Friday with European stocks ending slightly lower on the day (and on the week), but US indices closing marginally higher albeit the S&P 5oo still finished off Wednesday’s all-time high.

Euro area headline CPI inflation was confirmed at 2.4% in April according to Friday’s final reading, unchanged from March, while core inflation was also unrevised at 2.7%, down from 2.9%. The ECB expects headline inflation to fall to 2.2% by the end of this year, according to its most recent set of projections in March, and to decline to around the 2% target by the middle of next year.

ECB member Kazaks notes that the central bank’s “baseline scenario shows (inflation) gradually approaching our 2% target, which (means) we can also start reducing (interest) rates,” though he adds that “this process needs to be cautious, gradual and we should not rush.”

It is a very quiet start to the week on the economic data front with little or nothing of note today. As well as the CPI inflation report, producer prices (Wednesday) and retail sales (Friday) are due in the UK as well this week, while flash PMIs for the main economics are scheduled for Thursday.