Dollar edges higher
It was fairly quiet in FX markets yesterday ahead of a heavy schedule of economic data today, which includes flash PMIs for February in the main economies and GDP (Q4 2025) and PCE inflation (December) in the US. The euro and sterling edged down further against the dollar relative to Wednesday’s closing levels and are trading at around $1.1750 and $1.3450 this morning, while EURGBP is hovering just below £0.8750. UK retail sales data for January released a short while ago were a good deal stronger than expected but have had little impact on the pound so far.
Government bond markets proved uneventful as well yesterday with US, German and UK yields all little changed on the day. In equity markets, US and European stocks gave up some of Wednesday’s gains, although they finished off their lows of the day, with both shedding around half a percent or so. Rising oil prices may have weighed a bit on stocks. Brent crude has increased to just shy of $72 p/b (from under $68 at the end of last week) amid continuing US-Iran tensions. Overnight, Donald Trump said we’ll know in about 10 days what he ‘plans to do’ with Iran.
Retail sales in the UK rose by a much stronger than forecast 1.8% month-on-month in January according to this morning’s release, following a 0.4% increase in December, and were up 4.5% on January 2024. However, despite last month’s robust outturn, sales over the three months to January were up just 0.1% on the three months to October, reflecting a notable decline in sales over the October-November period last year.
Consumer confidence in the Euro area rose for a second month running in February according to the European Commission’s indicator. While the increase was only marginal it does extend a gradual improvement in sentiment over the past year or so. Meanwhile, construction output in the zone increased by almost 1% in December, though this only partially reversed a fall in November, while output for Q4 2025 as a whole was largely flat versus Q3.
Today’s PCE inflation data in the US are expected to show headline and core prices both rose by 0.3% in December, which would leave the annual rates of inflation at 2.8% and 2.9% respectively (versus 2.8% for both in November). The US economy is expected to have grown by 0.7% q-o-q (or by 2.8% at an annualised rate) in Q4 2025, according to the consensus forecast for GDP, having expanded by 1.1% (4.4%) in Q3. In addition to the flash PMIs for February in the main economies, other date due include the negotiated wages indicator (Q4) in the Euro area and new home sales (December) in the US.