Dollar dips late Friday
The euro and sterling both regained some ground against the dollar late Friday as the market chose to take its cue from signs of softer services sector activity in the US rather than firmer than forecast payrolls growth. EURUSD still ended lower last week overall though while GBPUSD finished broadly flat, and kick off this week trading at $1.0950 and $1.2720 respectively. EURGBP gave up ground as well last week and is hovering in and around £0.86 at the start of play today.
Sovereign bond yields headed further north on Friday albeit closing off their highs of the day. US and German 10-year yields rose by around 15bps on the week, with the former back above 4% again, while equivalent UK yields increased by around 25bps. Meanwhile, the first week of the new year saw equity markets shed around 1% or so.
The US economy added 216k jobs in December according to Friday’s payrolls report, following a gain of 173k in November, though the underlying trend is one of gradually moderating employment growth. The unemployment rate was unchanged (3.7%) last month while earnings growth picked up a touch (to 4.1% year-on-year). Separately, activity in the services sector slowed notably in December judging by the latest ISM services index, which fell to 50.6 last month, just above the key 50 expansion-contraction threshold.
The headline inflation rate in the Euro area reaccelerated as expected in December, rising to 2.9% from 2.4% in November, but the core rate fell to 3.4% from 3.6%, again as expected. The market pared back the chances of a March rate cut over the course of last week, with a quarter point reduction now seen at about 50-50.
Economic data of note this this week include consumer (CPI) and producer (PPI) prices in the US on Thursday and Friday respectively, and November GDP in the UK on Friday. In relation to the US CPI, the consensus expects the headline inflation rate to come in at 3.2% in December, up slightly from 3.1% in November but down substantially from 6.5% a year earlier, while core inflation is seen nudging down to 3.8% (4% in November and 5.7% in December 2022).