Dollar continues to nudge higher

Government bonds remained under pressure amid rising oil prices with yields rising further across the main markets – the best that can be said is they finished off their highs of the day – while the dollar continued to nudge higher in this environment. The euro and sterling are trading at around $1.1350 and $1.3230 against the US currency this morning, not far off their respective 2026 to date lows of about $1.1325 and $1.3150 reached back in late June. EURGBP is marginally softer at around £0.8575 at the start of play today.

With Brent crude oil prices reaching highs for the day of almost $109 per barrel, government bonds remained very much on the back foot. Yields rose across the main markets, increasing by 5-8bps led by US Treasuries. Higher yields weighed on equity markets. The S&P 500 in the US shed around 0.8%, while the Stoxx Europe 600 gave up early gains to end largely flat overall.

ECB President Christine Lagarde says the central bank sees “higher inflation ahead but no signs yet that it is becoming embedded”, adding the “while the (energy price) shock is too large to look through, we view a measured response (in terms of monetary policy) as appropriate to keep inflation in check.” In this regard, Lagarde also noted that “since our last meeting long-term interest rates have risen notably, which will slow growth and reduce pass-through (to inflation) by more than projected in our September exercise,” suggesting the ECB believes the recent tightening of financial conditions (via rising bond yields) is doing some of its monetary policy work for it.

Bank of England MPC member Ramsden says “the risks to the inflation outlook, whether external or domestically generated, have tilted more to the upside,” adding  that “whilst the policy stance continues to provide restrictiveness, were upside pressures on the inflation outlook to continue to build, there could be a case for increasing Bank Rate.”

Economic data scheduled for today include the European Commission’s Economic Sentiment Indicator (ESI) for September in the Euro area; mortgage lending/approvals (August) in the UK; and consumer confidence (September) and job openings (August) in the US.  A number of ECB, Fed, and BoE members are due to speak over the course of the day.