Sterling on the front foot
The market is pricing in less in terms of interest rate cuts from the Bank of England over the next while relative to the Fed (particularly) and the ECB. This is supporting sterling, which rose to a new high for the year of almost $1.3270 against the dollar yesterday, although it has since come back to about $1.3240, and continues to nudge higher against the euro, trading at around 84.25p this morning. The euro traded up to almost $1.12 against the US currency overnight but it has also eased back to around $1.1150.
Government bond yields nudged higher yesterday. UK 10-year yields rose by almost 10bps (partly reflecting “catch-up” after the Bank Holiday weekend) and equivalent German yields were up around 5bps, while US yields were flat to marginally higher. It was a quiet enough session in equity markets, with both European and US stocks making very modest gains, while results from Nvidia later will be watched with interest.
ECB member Knot says as long as inflation remains on a path down to 2% “before the end of 2025, then of course I’m comfortable with gradually taking our foot off the (monetary policy) brake”, while his central bank colleague, Centeno, believes “the path for interest rates in the euro area seems relatively clear.” The market is currently pricing in about 65bps worth of cuts by the end of this year, less than for the Fed (almost 100bps) but more than for the Bank of England (about 40bps).
Consumer confidence in the US rose for a 2nd month running in August, according to the Confidence Board’s measure, albeit remaining below its level at the end of last year. Regarding consumers assessment of labour market conditions , the net balance of survey respondents saying “jobs are plentiful” fell for a 7th month in a row.
Looking to the day ahead, it is very quiet on the economic data front today with only money supply & credit growth due in the Euro area.