Dollar a little softer
Some softer than expected economic data out of the US weighed a little on the dollar yesterday, while much stronger than expected UK retail sales numbers released earlier this morning haven’t had much impact on sterling. The US currency is trading at around $1.0770 against the euro and a touch below $1.26 against the pound, with EURGBP still hovering in an around £0.8550.
It was quiet enough in government bond markets with German and UK yields ending slightly higher on the day but US yields finished marginally lower. Equity markets advanced for a second session running with the S&P 500 in the US closing at a new all-time high.
Following news that the UK economy fell into recession over the second half of last year, this morning’s retail sales for January brought a pleasant surprise with volumes rising by almost 3.5% from December, well ahead of the consensus forecast for a gain of 1.5%. However this just about reversed the fall that occurred in December and, indeed, over the three months to January, retail sales volumes were still down 0.2% on the three months to October.
In the US, retail sales fell back in January and December’s gain was revised down, while manufacturing output also fell last month. The latest estimate from the Atlanta Fed puts the run rate for GDP growth in the current quarter at around 0.7% (or 2.9% annualised), which is still strong albeit lower than in Q3 and Q4 last year.
The European Commission has revised down its forecast for Euro area GDP growth this year to 0.8% from 1.2% in its November projections, while 2025 was left largely unchanged at 1.5%. It has also lowered its forecast for inflation this year to 2.7% (3.2% previously), and sees it declining further to 2.2% (unrevised) in 2025. The Commission’s inflation forecasts are in line with the December projections from the ECB, while the latter will publish an updated set of numbers at next month’s monetary policy meeting.
ECB’s Villeroy says the central bank shouldn’t “overly delay the first (interest rate) cut,” adding that “it’s not a question of rushing, but acting gradually and pragmatically can be preferable to deciding too late and then having to over-adjust.”
Economic data due today include housing starts, consumer confidence, consumer inflation expectations, and producer price inflation, all in the US, with the market likely to be particularly focused on the inflation numbers.