Dollar edging lower

The dollar continues to edge down, with the US currency weakening to around $1.0630 to the euro and to over $1.23 to sterling, leaving EUR/£ broadly unchanged at 86.3p. Despite continued geopolitical turmoil, markets remained in a fairly positive mood with US equities gaining – S&P 500 finishing up for a fourth consecutive day –  while bond yields headed lower.

Government bond yields moved down a notch further with US 10-yields down 10bps to 4.55%, UK yields also dipping 10bps to 4.3%, and German yields down 5bps to around 2.7%.

The Fed’s latest FOMC minutes showed the committee has a more balanced view of how to proceed with the Fed funds rate at or near peak.  They note that ‘participants generally judged that, with the stance of monetary policy in restrictive territory, risks to the achievement of the committee’s goals had become more two-sided’ and that all agreed to ‘proceed carefully’. A majority of members saw one more rate increase ‘would likely be appropriate’ while ‘some’ felt no more hikes were needed. Given the increase in long term US yields since that meeting some of that majority may feel it’s time to at least pause before another hike given the minutes also said the committee was taking into account the ‘balance of risks’.

The ECB survey of consumer inflation expectations in August showed the Governing Council may still have some work to do to tame inflation as consumers still think prices are going to rise above target. The 12 month ahead view rose slightly to 3.5% from 3.4% in July, while the three years ahead view picked up to 2.5% from 2.4%. While this is down from where expectations were earlier this year it shows that, despite successive interest rate hikes, households in the EU – where oil prices are rising again, the labour market remains relatively tight and euro has weakened somewhat  – are not convinced that inflation will return to the ECB’s target even at three years out.

UK GDP rebounded in August growing by 0.2% month-on-month following a dip of 0.6% in July. The fall in July was partly due to strikes in the services sector which ended in August so that sector grew by 0.4% and was the sole driver of growth as manufacturing contracted by 0.8% and construction fell 0.5%. The UK economy remains on unsteady ground following rapid interest rate increases and a contraction for Q3 as a whole remains a possibility as to avoid this, the UK economy will need to have grown by a little over 0.2% in September.

Economic data due today includes US inflation and earnings data. There is a plethora of Central Bankers on the slate with among others the ECB’s Elderson, Villeroy and Panetta, BoE member Pill and Fed’s Bostic, Logan and Collins while the ECB also publish the minutes of their last meeting.