Dollar on the front foot

There was a cautious enough mood in markets yesterday – as the government shutdown drags on in the US and political chaos continues in France – with equity markets retreating, bond yields edging lower, and the dollar gaining ground. The latter has advanced further overnight, strengthening against a broad range of currencies. EURUSD has fallen to a more than 1-month low of about $1.1625, while GBPUSD has weakened to around $1.3415. The euro continues to nudge lower against the pound, trading at around £0.8665 this morning.

Government bond yields are edging down again this morning after closing lower yesterday. US 10-year bond yields ended down around 4bps yesterday, while equivalent German and UK yields fell by 2-3bps. In equity markets, the S&P 500 in the US retreated from Monday’s record high, shedding around 0.4%, while the Euro Stoxx 50 was off about 0.3%.

ECB’s Nagel says the central bank is “in a good situation (with) inflation in the euro area close to our medium-term target of 2% and expected to remain there over the next years.” Given this, the ECB’s current monetary policy stance “is the right way forward.”

Short-term inflation expectations in the US picked up in September according to the New York Fed’s latest consumer survey, with 1-year ahead expectations rising to 3.4% from 3.2% in August, though 3-year ahead inflation expectations remained steady at the 3.0%. At the same time, the “perceived probability of losing one’s job in the next twelve months” rose to 14.9 percent, above the trailing twelve-month average of 14.1.

For the day ahead, it is very quiet on the economic data front with little or nothing of note due for release. The Fed publishes the minutes of last month’s monetary policy meeting, while a number of Fed members are also scheduled to speak over the course of the day.