Dollar on the front foot
The dollar is on the front foot following stronger than expected manufacturing data out of the US yesterday. It has gained around three quarters of a cent against both the euro and sterling to trade at around $1.0725 and $1.2550 this morning, leaving the euro-sterling cross little changed (and still trading in a very tight range) at about 85.5p.
The US manufacturing data also contributed to a sharp rise in US Treasury yields with 2- and 10-year yields increasing by about 8bps and 12bps respectively. Not surprisingly, European and UK bond yields are moving higher in sympathy this morning as markets re-open after the holiday weekend. Meanwhile, in equity markets, the S&P 500 finished marginally lower yesterday after closing out March at a record high and with gains of around 10% for the first quarter of the year.
Oil prices have been trending higher during the course of 2024 to date and they have moved up further following the news of an Israeli attacked on Iran’s embassy in Syria yesterday, with Brent crude up around a cent to over $88 per barrel.
In the US, the ISM index of manufacturing activity moved into expansionary territory in March – for the first time since September 2022 – rising to 50.3 from 47.8 in February. Both output and orders increased last month, pointing to a recovery in this sector of the economy.
Staying with the US, last Friday’s PCE inflation data for February were broadly in line with expectations, with the headline inflation rate nudging up to 2.5% and the core rate nudging down to 2.8%. Both headline and core PCE prices rose by 0.3% on the month, which Fed Chair Powell said was “not as low as most of the good readings we got in the second half of last year…but definitely more along the lines of what we want to see”, adding that he expects “inflation to move down to 2% but on a path that is sometimes bumpy” and reiterating that the Fed “doesn’t have to be in a hurry” to cut interest rates.
Economic data due today include manufacturing PMIs for the main economies (final readings for March), as well as the ECB’s latest consumer inflation expectations survey, German CPI inflation, mortgage approvals in the UK, and job openings and factory orders in the US. Data of note over the rest of this week include a flash reading for Euro area inflation in March tomorrow and the March employment (payrolls) report in the US on Friday.