Dollar a touch softer

Having traded in a very tight range yesterday, the euro has pushed on a bit against the dollar overnight and is back close to Monday’s high of about $1.1650. Sterling is also creeping up against the US currency, trading at around $1.3250 this morning (Monday’s high was $1.3275). The pound has slipped to circa £0.88 versus the euro and has now given up the (modest) gains it made immediately following last week’s budget in the UK. Economic data in the US today include the ADP employment report and the ISM services index (both for November), which could have some impact on the main currency pairs.

There was some respite for government bonds yesterday with yields in the main markets largely unchanged on the day (after they spiked higher on Monday). US equity markets partially recovered from Monday’s fall, led by the Nasdaq which gained just over half a percent, while European stocks ended modestly higher.

The OECD has revised up its forecasts for the US economy in its latest projections though it still expects GDP growth to slow to 2% this year (from 2.8% in 2024) and to 1.7% next year (2025 and 2026 both revised up by 0.2 percentage points), and sees the Fed cutting interest rates to a terminal rate of 3.25-3.5% by the end of 2026 (from 3.75-4% currently). The OECD expects the ECB to keep the deposit rate on hold at 2% through next year, against the backdrop of modest GDP growth (1.2% in 2026) and with inflation close to target.

Headline inflation in the Euro area ticked up to 2.2% in November, from 2.1% in October, according to yesterday’s flash reading. It has been between 1.9% and 2.2% since March this year, which for a central bank targeting 2% inflation is a ‘good place’ to be (as Christine Lagarde has said on a number of occasions). Core inflation (excluding energy and food prices) was unchanged at 2.4%, with goods inflation steady at 0.6% and services inflation increasing for a third consecutive month to 3.5%.

For the day ahead, in the US, the ADP jobs report is expected to show a small rise in private sector employment of 10k in November according to the consensus forecast, following an increase of 42k in October, while the headline ISM services index is expected to have been largely unchanged last month (at around 52). Final PMI services readings for November are also published in the main economies.