Another day, another (firmer) dollar

The dollar continues to advance on the FX markets and has now gained just over 1% since last Wednesday’s Fed interest rate hike, which has been the clear catalyst for its move higher in the intervening period. The euro and sterling are currently trading at around $1.1425 and $1.3315 against the US currency respectively, leaving them about 1 cent and 2 cents respectively off their lows for 2026 to date set back in June. EURGBP, meanwhile, continues to hover just below the £0.86 level, little changed from yesterday morning.

Government bond yields in the main markets ended unchanged to marginally higher yesterday, though they are edging down this morning along with the oil price, which has dipped to around $98 per barrel (Trump says a deal with Iran could be reached after the US mid-terms – though he also says he might “annihilate the Islamic Republic”). It was fairly non-eventful in equity markets overall, US and European stocks both closing broadly flat following Monday’s solid gains.

ECB member Nagel says he “cannot exclude if we are being confronted for a longer time with high energy prices, that we have to go into mild restrictive (monetary policy) territory”, although he adds that it’s too early to make a “call on that.” The deposit rate, now at 2.5% after last week’s 25bps hike, is at the top of the ECB’s estimate of the range for the neutral interest rate, while the market sees it heading to 3.25% by June of next year based on current expectations.

Consumer confidence in the Euro area slipped back this month – after rising in each of the four months to August – according to the European Commission’s flash reading, which is not too surprising given the renewed rise in energy prices recently. Sentiment still remains off its lows in April, which followed shortly after the outbreak of the war in Iran.

For the day ahead, flash PMIs for September are due in the Euro area, UK and US (we’ve had flash readings for France and Germany already this morning, both of which have come in stronger than expected). A number of ECB and Fed members are due to speak over the course of the day.