Dollar marginally firmer

The euro and sterling are both marginally lower against the dollar from where they were yesterday morning, trading at around $1.0825 and $1.2725 respectively, with the single currency a touch softer against the pound trading just above 85p. The UK Prime Minister’s surprise calling of a general election for July 4th had little impact on sterling, although there may be some volatility in the currency over the course of the campaign.

In government bond markets, UK 2-year yields ended the day almost 15bps higher on the back of firmer than expected inflation readings for April, with 10-year yields finishing around 10bps higher. German 10-year yields rose by around 5bps, while equivalent US yields were broadly flat on the day. In equity markets, both European and US stocks closed in the red yesterday (with losses of up to 0.5%), though European indices have opened in positive territory this morning helped by Nvidia’s results overnight.

The calling of a general election in the UK was something of a surprise. Rishi Sunak has said for some time that one would be held over the “second half” of this year, but it wasn’t expected to be as soon as July 4th. Perhaps he thinks he’ll benefit from a “feel-good factor” as England progress to the quarter-finals of the Euros on July 5/6th! That may not be enough to help the Conservatives though, given Labour’s substantial lead in the polls. Labour says it will “deliver economic stability with tough spending rules, so we can grow our economy and keep taxes, inflation and mortgages as low as possible”, which is hardly something that will cause financial markets to take fright.

ECB Vice-President de Guindos says “we have been very transparent about the decision at the June meeting…we are taking a prudent approach, which would argue in favour of a reduction of 25 basis points.” However he adds that “there is a huge degree of uncertainty, we have made no decisions on the number of interest rate cuts or on their size, we will see how economic data evolve.”

The Fed minutes (May 1st meeting) published yesterday contained little that was new, with officials noting that the current restrictive stance of monetary policy should be maintained for longer should inflation not show signs of moving sustainably towards 2%.

Economic data due today includes flash PMIs for May in the main economies, as well as jobless claims and new home sales in the US.