Dollar comes under pressure

After having had a good run recently, the dollar came under pressure yesterday after the release of weaker than consensus economic data out of the US, falling to around $1.12 against the euro and backing up towards $1.27 against sterling. This all left the pound trading largely unchanged at about 88p against  the single currency, ahead of an expected announcement from Theresa May today that she is stepping down as Tory leader but will stay on as caretaker PM until her successor takes the reins. Mind you, experience would suggest let’s just wait and see what happens!

Bond yields in the core markets fell in response to the weaker US economic data. Benchmark 10-year yields in the US ended the day down about 6bps at 2.32% – the lowest level since late 2017 – with equivalent German and UK yields about 4-6bps lower at -0.12% and 0.95% respectively (the first time UK yields have been below 1% since late 2017 also)

The manufacturing and services PMIs for the US both fell in May according to the flash readings, to levels consistent with annualised GDP growth of around 1.25%, well down from the 3%+ rate recorded in the first quarter of this year (though still ahead of the annualised rate of growth of just shy of 1% in the Euro Area signalled by the latest PMIs there)

The IFO index of the business climate in Germany fell to a more than 4 year low in May. This reflected a “considerably worse assessment of the current business situation” with the assessment of the “outlook for the coming months unchanged”, all of this suggesting that “the German economy is still lacking in momentum”

Data due today includes retail sales in the UK and orders for capital goods in the US