Dollar off its lows
Markets are reacting to the assassination attempt on Donald Trump over the weekend – which is seen as having increased his chances of winning the November presidential election – with the dollar marginally firmer overnight having lost a good bit of ground last week. Sterling was on the front foot last week, strengthening by the best part of two cents against the US currency (to just shy of $1.30) and setting a new 2024 high versus the euro (of just under 83.9p). It is trading at around $1.2970 and 83.95p this morning, ahead of a key week for UK economic data – with CPI inflation for June on Wednesday and the latest labour market report on Thursday – which could have an important bearing on whether the pound advances further or gives up some of its recent gains. The euro, which gained ground against the dollar as well last week, has edged down from Friday’s intra-week high of almost $1.0910 to trade at about $1.0890 this morning.
US government bond yields are slightly higher overnight in response to the weekend’s events, having fallen sharply last week as Fed rate cut expectations firmed, with 10-year yields up around 3bps, though European bond yields are a touch lower. Meanwhile, European equity markets have opened in the red, reversing some of Friday’s gains of almost 1.5%.
Consumer confidence in the US fell for a fourth month in a row in July according to the latest University of Michigan survey, which will add to concerns about a slowdown in growth in the economy, while consumers short- and medium-term inflation expectations edged down, which will be reassuring for the Fed.
Revised CSO data published on Friday showed GDP in Ireland fell by more than previously estimated in 2023, contracting by 5.5%. Much more significantly though, growth in modified domestic demand was revised up to 2.6% from 0.5% previously, aligning it better with other indicators of the underlying strength of the Irish economy including the growth in employment.
Looking to the week ahead, the ECB holds its latest monetary policy meeting on Thursday, with the market expecting it to keep interest rates on hold following last month’s quarter-point cut. On the economic data front, in addition to the UK inflation and labour market reports mentioned above, we also get Euro area industrial production today and US retail sales and industrial production on Tuesday and Wednesday respectively. Finally, Fed Chair Powell is scheduled to speak later today.