Dollar heading higher again
There was some respite for equity markets yesterday, with US and European stocks both advancing, amid steady (oil) and lower (gas) energy prices. The dollar was under a little pressure as a result, but stronger than expected US economic data helped limit any downside for the currency. Indeed, with energy prices heading higher this morning, the dollar has resumed on the front foot, trading at about $1.1585 and $1.3320 vis-a-vis the euro and sterling respectively this morning (versus yesterday’s closing levels of $1.1635 and $1.3375). EURGBP continues to hover around £0.87. Its high and low this year are just shy of £0.88 and circa £0.86 respectively, highlighting the very narrow range that has prevailed in 2026 to date.
Oil prices steadied and European gas prices fell by around 10%, helped by US assurances that it will protect traffic through the Straits of Hormuz. However this is proving short-lived indeed with both moving higher again this morning, increasing by around 3% and 9% respectively. Hence yesterday’s equity market gains – which saw US and European indices advance by 1-2% – may also prove short-lived. In government bond markets, US yields nudged up by around 3bps across the curve on the back of the stronger than expected economic data, while German and US yields were flat to marginally lower on the day. Yields generally are heading higher this morning in line with the renewed rise in energy prices.
Services sector activity in the US picked up strongly in February according to the latest ISM survey, with the headline index rising to its highest level (56.1) since July 2022. Output and new orders both rose last month, while employment expanded for the third month in a row. With manufacturing activity picking up in January-February (according to the equivalent ISM survey for the sector), the economy looks to have started 2026 on a very solid footing.
ECB member Villeroy says the central bank is following energy prices and developments on financial markets very closely and will have a much more detailed economic assessment at their next Governing Council meeting in a couple of weeks. He notes that “everything will depend on the duration of the conflict, whether it’s a temporary phenomenon or a lasting phenomenon of rising prices” (which of course is the great uncertainty), but adds that he doesn’t “see any reason today why the ECB should raise interest rates.”
Economic data due today include weekly jobless claims and import prices (for January) in the US; retails sales (January) in the Euro area; and the construction PMI (February) in the UK. There are a few Fed and ECB members scheduled to speak over the course of the day.