Dollar touch lower as US stocks rebound
The dollar has given up some ground as US equity markets rebound from a sell-off earlier in the week. The euro is trading at around $1.1510 against the US currency this morning, almost half a cent off its lows yesterday of just under $1.1470. Ahead of the Bank of England MPC’s latest interest rate announcement at noon today, sterling is trading at about $1.3070 versus the dollar, off lows yesterday of very close to $1.30, and at around £0.8810 against the euro, marginally firmer than this time yesterday morning. While the market expects the MPC to keep rates on hold today, a sizeable minority of the nine Committee members may vote for a cut. This could boost market expectations that rates will be lowered at the December meeting, which in turn could weigh on the pound.
US equities rebounded yesterday, albeit ending off their best levels of the day, with the S&P 500 and Nasdaq gaining around 0.4% and 0.7% respectively. Asian markets had a positive session overnight, following a couple of down days, but European stocks have opened a touch lower this morning. In government bond markets, US yields backed up quite notably as stocks recovered, and also on the back of some slightly stronger than expected economic data, increasing by 6-7bps across the curve. UK yields rose by 3-4bps, while German yields were broadly flat on the day.
Private sector employment in the US was a touch firmer than expected in October according to the latest ADP report, increasing by 42k following a decline of 29k in September. Over the three months to October employment growth was essentially flat, averaging just +3k a month, down from +37k a month over the three months to July and 97k a month during February-April. The message from the labour market continues to be that, while hiring is weak, layoffs also remain low.
ECB member Nagel says “while there’s a discussion ongoing that maybe we are undershooting our (inflation) target, what I see at least for the moment is that we are pretty close to our target over the medium term,” though he also notes that there will be updated forecasts available at the December meeting and the central bank is keeping all policy options open.
For the day ahead, the MPC interest rate announcement in the UK is obviously the main focus for markets. On the economic data front, retail sales for September are due in the Euro area and the construction PMI for October is published in the UK. There are quite a number of Fed and ECB members due to speak over the course of the day, so some headlines may hit the wires.