Dollar loses ground

The euro and sterling popped higher against the dollar following the release of weaker than expected services sector data in the US yesterday and are trading at around $1.0850 and $1.2660 respectively this morning (both up around three quarters of a cent from yesterday morning). EURGBP is little changed at about £0.8570 as it continues to trade in a very narrow range.

Sovereign bond yields ended largely unchanged notwithstanding the softer than expected US data and, indeed, slightly lower than forecast Euro area inflation in March. It was a mixed session in equity markets with European stocks adding around half a percent but US indices broadly flat on the day.

Comments by Fed Chair Powell contained little that was new and so had little or no impact on markets. He said “the job of sustainably restoring 2% inflation is not yet done” and reiterated that “it will not be appropriate to lower our policy rate until we have greater confidence that inflation is moving sustainably down toward 2%.”

The ISM (Institute of Supply Management) index of services activity in the US fell for a second consecutive month in March, though at 51.4 it remained above the key 50 level and so points to continued but more moderate growth in this sector of the economy.

In the Euro area, both headline and core CPI inflation came in slightly lower than expected in March at 2.4% and 2.9% respectively, down from 2.6% and 3.1% in February. The pace of deflation in energy prices slowed last month, but food price inflation decelerated further. Regarding core inflation, goods inflation fell to 1.1%, but services inflation remained sticky at 4%. The data overall keep the ECB on track to cut interest rates in June.

Economic data due today include services PMIs for March (final readings) in the main economies, as well as producer prices in the Euro area and jobless claims and the trade balance in the US. The ECB publishes the minutes of its March meeting, while a number of Fed members (seven no less) are due on the wires over the course of the day.