Dollar on the back foot

The dollar remains on the back foot this morning having lost ground yesterday as equity markets extended Friday’s gains. The euro is trading at a fresh 2025 high against the US currency just north of $1.0950, as is sterling which has risen to $1.30. This leaves EURGBP, which has been confined to a range of about £0.8350 to £0.8450 over the past couple of weeks, a touch firmer at £0.8425. The German parliament today votes on a proposal to amend the country’s debt brake, which is expected to pass, while the Fed and Bank of England announce their latest monetary  policy decisions tomorrow and Thursday respectively with both widely expected to keep interest rates on hold (at 4.25%-4.50% and 4.5% respectively).

European and US equity markets chalked up further gains, with the S&P 500 now up around 3% from last Thursday’s lows. In government bond markets, German 10-year yields fell by around 5bps, ahead of today’s vote in parliament, while equivalent US and UK yields were marginally lower. Yields at the short-end of the curve were generally a touch higher on the day.

Yesterday’s retail sales data in the US were something of a mixed bag. At the headline level sales rose by less than expected in February, increasing by 0.2% (in value terms) following a fall of 1.2% in January, while sales excluding autos increased in line with expectations (+0.3% on the month after January’s decline of 0.6%). Overall though, the pace of consumer spending looks to have slowed quite sharply in the opening quarter of 2025, following particularly strong growth over the second half of last year.

Looking to the day ahead, economic data due include industrial production, housing starts and import prices in the US. Over the remainder of the week, apart from the Fed and Bank of England meetings, data of note includes the latest labour market report in the UK on Thursday and flash PMIs for March in the main economies on Friday. A number of ECB members are scheduled to speak over the course of the week also.