Central banks to the fore this week

Having briefly gained ground on Friday following stronger than expected jobs data in the US, the dollar has since slipped back against both the euro and sterling to trade at around $1.076 and $1.256 this morning (leaving EUR/£ unchanged at 85.7p), ahead of a round of central bank meetings this week with the Fed, ECB, and Bank of England all announcing interest rate decisions.

Friday’s US jobs data prompted a spike in sovereign bond yields with 2- and 10-year yields increasing by 10-15bps. Equity markets still managed to end in positive territory for the day though, with the Euro Stoxx 50 gaining more than 1% to close at its high for 2023 to date.

The US economy added 199k jobs in November, slight ahead of expectations for a gain of c.180k, while the unemployment rate dipped to 3.7% from 3.9% in October. The annual rate of growth in hourly earnings remained at 4% in November, well down from its peak of almost 6% in 2022.

Consumer confidence in the US also rose this month, for the first time since July, according to the University of Michigan survey, helped by a decline in consumers’ short- and medium-term inflation expectations.

The three main central banks are all expected to leave interest rates unchanged again at their respective monthly policy meetings (the Fed on Wednesday, the ECB and Bank of England on Thursday). For the Fed and ECB, it will be a case of pushing back on market expectations for early cuts in interest rates, while for the BoE, it will warn of the possible need to raise rates again given still very elevated inflation (particularly core inflation which is running at almost 6%).

Economic data due over the course of this week include CPI inflation in the US tomorrow (Tuesday) and wage growth (weekly earnings) and GDP (October) in the UK on Tuesday and Wednesday respectively, while flash PMIs for the main economies are scheduled for Friday.