Dollar ends off its lows

Having sold off on Monday, US equities, bonds and the dollar regained ground over the remainder of the week. The S&P 500 added 0.7% on Friday to take its gains on the week to almost 5%, while US 10-year yields fell by 10bps (to 4.25%) bringing the decline from Monday’s highs to 20bps. The dollar closed out the week trading at around $1.1350 and $1.33 against the euro and sterling respectively, up about 2 cents and 1.5 cents from Monday’s lows. The pound recovered from lows of over £0.86 against the euro to end the week at around £0.8530. It’s a packed week ahead in terms of economic data, with GDP and inflation releases in both the US and Euro area and the April employment (payrolls) in the US on Friday.

In contrast to the fall in US bond yields, German yields were flat to slightly higher on the week. UK yields followed the US lower though with yields down across the curve albeit the long-end outperformed (10- and 30-year yields fell by around 8bps and 12bps respectively). In equity markets, European stocks chalked up solid gains of 3-4% on the week, marginally underperforming the US.

There wasn’t much change in central bank rate expectations on the week. Around 65bps of cuts by year-end is priced in for the ECB, and about 90s for the Bank of England including a 25bps reduction next week. The Fed is seen lowering rates by about 80bps by the end of the year, though it is expected to stay on hold again at next week’s meeting.

It is a very quiet today in terms of economic data with little or nothing of note due for release, though as mentioned there will be plenty for markets to digest over the rest of the week.