Dollar firmer

With bond yields backing up a little and equity markets losing some ground, the dollar made modest gains against the euro and sterling yesterday and is firmer again this morning trading at around $1.081 and $1.262 respectively This in turn sees EUR/£ unchanged at about 85.7p.

In government bond markets, US and UK 10-year yields backed up by 5-10bps, partially reversing some of last week’s fall. Equivalent German yields ended broadly flat yesterday but they are edging lower on the back of comments by the ECB’s Schnabel reported this morning.

ECB member Schnabel, who is considered one of the more “hawkish” members of the Governing Council, says the “remarkable” fall in Euro area inflation makes a further increase in interest rates “rather unlikely”. Schnabel had said recently another hike in rates couldn’t be taken off the table, but she has now acknowledged that “when the facts change, I change my mind”. Post her comments, the market is now pricing in almost a full 25bps cut in rates by March next year.

Oil prices have nudged lower again, after increasing ahead of last week’s OPEC+ meeting at which it was agreed to extend output cuts into 2024, with Brent crude back down to around $78 per barrel. Lower oil prices, if sustained, will exert further downward pressure on headline inflation rates.

Services activity in Ireland picked up in November according to the latest PMI index, which rose to 54.2 from 52.6 in October, helped by an acceleration in growth in new business, while inflationary pressures in the sector are reported to have eased last month.

Economic data due today include services PMIs in the main economies and job openings and the ISM services index in the US. In Ireland, the latest Exchequer returns are published, where the focus will be very much on the performance of corporation tax receipts in the key month of November.