Dollar on the front foot

The euro and sterling have had a poor start to 2025, both falling by around 1.5 cents against the dollar at one stage during yesterday’s session before recovering some ground to trade at about $1.0280 and $1.2395 respectively this morning, leaving EURGBP largely unchanged just below £0.83. There was no particular catalyst for the moves, just a continuation of the trend in place since September that has seen the euro and sterling shed around 9 and 10 cents respectively, driven essentially by the outperformance of the US economy which is expected to continue into 2025. That said, markets are probably not yet back to normal following the holiday period, which may have exaggerated the FX moves, so we’ll see what happens when they get back into full swing next week.

In government bond markets, yields reversed an initial decline to end flat to marginally higher on the day, while in equity markets, European stocks added almost 0.5% but US indices ended marginally in the red after giving up early gains.

Yesterday’s US economic data were something of a mixed bag. New jobless claims dipped last week and continue to run at low levels, suggesting the labour market remains resilient (the employment report for December will be published next Friday), and the final reading for the manufacturing PMI in December was revised up (to 49.4), but construction spending was flat in November and was down almost 0.5% over the three months to November (versus the three months to August).

Looking to the day ahead, economic data due includes the ISM manufacturing index in the US and mortgage approvals & lending in the UK