Dollar regains some ground
After the strong relief rally that followed the announcement of the US-Iran ceasefire, some early concerns about the status of the ceasefire, mainly related to Israel’s continuing attacks on Lebanon, is weighing a little on markets. US bond yields reversed course late in yesterday’s session, moving higher to end largely flat on the day, while Asian equity markets were lower overnight, albeit following very sizeable gains. The dollar is also a touch firmer, gaining ground against both the euro and sterling to trade at around $1.1660 and $1.3390 respectively this morning (from lows yesterday of about $1.1720 and $1.3480). EURGBP is little changed at it continues to trade just north of £0.87.
Markets are currently pricing in about 60bps and 40bps of rate hikes from the ECB and Bank of England this year respectively, about 20bps less than before the ceasefire announcement. The paring back of expectations contributed to a large decline in bond yields, with German and UK 2-year yields falling by over 20bps. Yields are edging higher this morning though, following the about-turn in US yields late yesterday. Meanwhile, in equity markets, European stocks outperformed, gaining around 5%, while the main US indices added between 2.5% and 3%. As noted, Asian stocks were generally lower overnight, while Europe has opened a touch softer this morning as well.
The minutes of the Fed’s March monetary policy meeting noted that inflation should “gradually move down toward the 2 percent objective after the effect of increased tariffs and higher oil prices had faded”, but that the “pace and timing at which these effects would fade (was) uncertain.” The minutes also noted that “many participants judged that, in time, it would likely become appropriate to lower (interest rates) if inflation were to decline in line with their expectations.”
Economic data due today includes PCE inflation for February in the US. The consensus expects headline inflation to have remained unchanged from January at 2.8%, while the core rate is seen nudging down to 3% (from 3.1%). Other US data include personal income/spending (also for February), a third estimate of GDP growth in Q4 2025, and the regular weekly jobless claims release.