Dollar loses some ground

Unlike earlier in the week, the euro and sterling are managing to hold on to most of their gains against the dollar having strengthened during the course of yesterday’s session. They are trading at around $1.0540 and $1.2650 respectively this morning, with lower US bond yields so far this week – in contrast to rising yields over the previous couple of weeks – weighing on the dollar. EURGBP meanwhile remains within its relatively narrow range of the past few weeks, trading at around £0.8330 at the start of play today.

US bond yields nudged down further yesterday. They have now fallen by around 15bps or so since last Friday’s close, as expectations that the Fed will cut rates next month have hardened somewhat (albeit the outcome is still seen as a close call). In equity markets, the S&P 500 in the US retreated from Tuesday’s record high, while European stocks fell for a second consecutive day (continuing their relatively poor performance since the US election).

The latest PCE inflation readings in the US were in line with expectations. Headline and core prices rose by 0.2% and 0.3% respectively in October, pushing the annual rates of inflation up to 2.3% and 2.8% respectively from 2.1% and 2.7% in September.

The second estimate of US GDP growth in Q3 showed the economy expanded by 0.7% in the quarter, unchanged from the initial estimate and in line with the Q2 outturn, with growth again driven by a strong increase in consumer spending.

It is quiet on the economic data front today with the the European Commission’s Economic Sentiment Indicator and the ECB’s latest money supply & credit growth data the only releases of note. It’s Thanksgiving Day in the US of course, so markets should be quiet.