Bond yields head north

There has been a dearth of economic data this week, and while there has been loads of central bank-speak, it has had little impact on FX markets. The upshot of both is that the main exchange rates have traded in very narrow ranges, and indeed they are little changed this morning from where they closed at the end of last week (with the euro and sterling at $1.0780 and $1.2630 against the dollar respectively and EURGBP at £0.8530).

Bond yields generally have risen further this week, extending the sharp increase that occurred following last Friday’s US jobs report, with US, UK and German 10-year yields up around 25-30bps over this period. Equity markets have advanced further though notwithstanding rising yields, with the S&P 500 closing at another all-time high yesterday just shy of the 5000 mark.

Bank of England MPC member Catherine Mann, one of two members who voted for a quarter-point hike in interest rates at last Thursday’s monetary policy meeting, notes that “over the past few years, UK inflation dynamics have been compared to both the US and those of the euro area with some people suggesting that the UK is just a “bit later” than its peers in returning inflation to target.” But for her though, “a look at the data suggests…that the “bit later” might be quite a while later,” which if so would mean any rate cuts in the UK would come later than elsewhere.

ECB Chief Economist Philip Lane says that, while inflation in the Euro area has fallen faster than expected, “in terms of our (monetary) policy trajectory, we need to be further along in the disinflation process before we can be sufficiently confident that inflation will hit the (2%) target in a timely manner and settle at target sustainably.”

It is very quiet on the economic data front today, with annual revisions to US CPI data scheduled, while there is a smattering of Fed and ECB members due on the wires.