Dollar off Friday’s lows
The dollar fell further on Friday, amid some softer than expected US economic data, having lost ground during Donald Trump’s first days in office (though of course it had risen sharply since his election in early November). The euro and sterling gained around 2 and 3 cents against the US currency on the week respectively, albeit they finished off Friday’s best levels of around $1.0515 and $1.25 and have slipped further to about $1.0470 and $1.2450 at the start of play today. The pound advanced against the euro last week, strengthening by almost half a penny, and is trading at about £0.8415 this morning. The focus this week will be on the Fed (Tuesday/Wednesday) and ECB (Thursday) monetary policy meetings, with the former expected to leave its policy rate unchanged at 4.25%-4.5% and the latter seen cutting the deposit rate by another 25bps to 2.75%.
Market expectations for ECB rate cuts in 2025 were pared back a little last week, to around 90bps, but increased a touch for the Fed and the Bank of England, to circa 40bps and 70bps respectively. Reflecting this, German bond yields edged higher on the week while UK and US yields nudged down a little. Yields generally are lower this morning though, led by a decline in US yields, amid some softness in equity markets, with European stocks off around 1% at the open and US indices set to open lower later in the day.
The latest Purchasing Managers data (PMIs) for the Euro area and the UK, published on Friday, were slightly better than expected but still point to weak economic activity in both economies, while the equivalent data for the US was slightly softer than forecast and point to some moderation in the pace of activity at the start of 2025. Separately, consumer confidence in the US fell back this month according to the University of Michigan survey, having increased in November-December following Trump’s election victory.
Looking to the week ahead, as noted, the focus will be on the Fed and ECB monetary policy meetings, while economic data due include flash readings for US and Euro area GDP in Q4 2024, both on Thursday, and PCE inflation for December in the US on Friday. Today sees the release of new homes sales data in the US.