Dollar loses more ground

The dollar was conspicuous last week in not benefiting from a “flight to safety” as equity markets sold off quite sharply, losing ground to both the euro and sterling over the second half of the week. It has fallen further against both currencies overnight to trade north of $1.07 and $1.21 respectively, leaving EUR/£ largely unchanged at about 88.5p

Government bonds rallied strongly last week as stocks headed south. US 10-year yields fell by around 25bps to 2.70% with equivalent German and UK yields declining by about 20bps to 2.50% and 3.65% respectively, while yields generally are edging lower again this morning

The authorities in the US have stepped in “to protect the US economy by strengthening public confidence in our banking system”, announcing the resolution of Silicon Valley Bank (whose troubles were the catalyst for last week’s fall in stock markets) “in a manner that fully protects all depositors”, as well as making “available additional funding…to help assure banks have the ability to meet the needs of all their depositors”

The US economy added 311k jobs in February according to Friday’s “payrolls” report, ahead of the expected gain of around 220k, while the unemployment rate nudged up to 3.6% (from 3.4%), mainly reflecting increased participation in the labour force, and hourly earnings rose by a slightly smaller than expected 0.2% month-on-month (leaving the annual increase at 4.6%)

The ECB meets this Thursday and, despite the latest wobble in markets, is likely to increase interest rates by 50bps as intended. Of more interest, perhaps, will be what it signals about the path for rates beyond this week’s meeting

The key data release this week will be the CPI report for February in the US tomorrow (Tuesday) – the consensus expects the headline rate of inflation to fall to 6% from 6.4% and the core rate to dip to 5.5% from 5.6%. Other data of note will be retail sales in the US  (Wednesday) and the latest labour market report in the UK  (Tuesday)