Main currency pairs little changed

While Donald Trump continued to talk up the chances of an end to the war in Iran, FX markets were mainly in consolidation mode with the main currency pairs largely unchanged. Stocks had a mixed session, though the S&P 500 closed at a new all-time high, and bond yields backed up a little having rallied strongly earlier in the week. The euro and sterling are trading at around $1.18 and $1.3560 this morning, while EURGBP remains a touch below the £0.87 level.

Having fallen quite sharply earlier in the week, government bond yields in the main markets were marginally higher yesterday, increasing by about 2-4bps across the curve. European equity markets ended lower on the day, shedding a bit more than half a percent, and while US indices had a mixed session, the S&P 500 gained around 0.8% to close at a new record high.  There’s a positive tone to markets generally this morning though, with bond yields edging lower again and stocks moving higher.

Helping the mood in markets is a report from Reuters, which notes that ECB policymakers are “wary about raising interest rates as soon as this month” as they have yet to see firm evidence that an “energy-induced inflation shock is becoming more broad-based or entrenched”. The report adds that such “second-round (price) effects are still possible and policy tightening remains firmly on the table.”

The UK economy expanded quite strongly in February according to data released a short while ago, with GDP increasing by 0.5% on the month (and the January outturn revised higher to +0.1%).  Over the 3 months to February, GDP grew by 0.5% versus the 3 months to November and was up 0.8% on a year-on-year basis. In updated projections published this week, the IMF revised down its forecast for full-year growth in 2026 to 0.8%, from 1.3% previously, largely on account of the fallout from the war in Iran.

The Fed’s latest Beige Book survey of businesses notes that “the conflict in the Middle East was cited as a major source of uncertainty that complicated decision-making around hiring, pricing, and capital investment, with many firms adopting a wait-and-see posture.”  Labour markets were described as “stable, with low turnover (and) minimal layoffs”, while input cost increases, including for energy, “outpaced selling price growth, compressing margins.”

For the day ahead, economic data include a final reading for Euro area inflation in March – the flash reading showed headline inflation accelerated to 2.5% last month from 1.9% in February – and industrial production and weekly jobless claims in the US. There are a number of central bank members scheduled to speak over the course of the day.