Dollar firmer this morning
It was quiet in markets yesterday with the US on public holiday and economic data thin on the ground. In FX, the euro and sterling lost some ground to the dollar during the course of the day and both are lower again this morning, trading at around $1.1675 and $1.3450 respectively, while EURGBP is little changed from yesterday morning’s levels at around £0.8675. There’s a bit more in the way of economic data today, with a flash estimate of August inflation in the Euro area and the closely followed ISM manufacturing index in the US.
in government bond markets, German and UK 10-year yields both edged up by around 3bps, while equivalent US yields have followed suit in overnight trading. In equity markets, European stocks chalked up modest gains of around 0.3%, while the futures market points to a soft re-opening for US indices later today.
The Euro area labour market has remained resilient through 2025 to date. Employment has continued to increase albeit at a slightly slower pace than in the 2024. The unemployment rate has stayed low and stable, dipping to 6.2% in July (from 6.3% in June) according to yesterday’s data, matching last November’s record low reading (since the single the currency was introduced in 1999).
ECB member Schnabel says barring large shocks there is no reason to adjust interest rates in either direction, noting that “as we cannot fine-tune-inflation, we should only react to material and persistent deviations from (the 2%) target.” She also notes that, “going forward, some of the factors that may have been holding back economic growth are going to turn more supportive…in particular, trade policy uncertainty has declined significantly due to the (EU-US) trade agreement, with the agreed tariff rates being not far from our June baseline…in addition, we are expecting a significant fiscal impulse” (from increased infrastructure and defence spending).
Today’s Euro area CPI data are expected to show the headline rate of inflation ticking up to 2.1% in August from 2% in July, according to the consensus forecast, with the core rate seen dipping to 2.2% from 2.3%. In the US, the ISM manufacturing index is expected to increase in August but to remain in contractionary territory (<50) at 49.0, versus 48.0 in July.