Dollar on the back foot
The dollar was on the back foot yesterday falling against a broad range of currencies, though there didn’t appear to be any particular catalyst for the move lower. It shed more than 1% against the yen, as the latter regained some of the ground it had lost late last week ahead of elections in Japan over the weekend, and fell to lows north of $1.17 and $1.35 against the euro and sterling, though it has since recovered a little to around $1.1690 and $1.3475 respectively. EURGBP is a touch firmer this morning at about £0.8675, the upper end of the very tight range of £0.86 to £0.87 that has prevailed during the month of July to date.
US bond yields fell further, though they finished off their lows, with the long end of the curve outperforming as 10-and 30-year yields dropped by 4-5bps. German and UK yields caught up with the move lower in US yields that began late last week, with 10-year yields falling by 8-9bps on the day. In equity markets, European stocks ended in the red for a second consecutive session, albeit only marginally so, while the S&P 500 retreated from it best levels of the day but still closed at a new all-time high.
In an television interview yesterday, US Treasury Secretary Bessent said there needs to be a review of “the entire Federal Reserve institution and whether they have been successful”, which certainly sounded ominous given concerns about the Fed’s independence in the face of ongoing criticism from the Trump administration for not cutting interest rates. He later clarified his remarks, saying the Fed should conduct an internal review of its non-monetary policy operations, adding that its independence in monetary policy-making “is a cornerstone of continued US economic growth and stability”.
Public finances data published in the UK a short while ago shows public sector net borrowing was £20.7 billion in June, almost £6.6 billion more than in June 2024 driven by an increase in debt interest repayments. For the financial year to date i.e. April-June borrowing was £57.8 billion, which was £7.5 billion more than in the same period of 2024 and the third-highest April to June borrowing since monthly records began (after those of 2020 and 2021). UK bonds are underperforming a touch this morning on the back of the data, with yields up 3bps or so at the start of play.
It is extremely quiet economic data-wise for the rest of the day with just a couple or regional surveys of economic activity due in the US. Here at home, the government publishes a revised National Development Plan (NDP) and the Summer Economic Statement.