Dollar on the front foot again
The euro and sterling have resumed their descent against the dollar, with more stronger than expected US economic data, this time retail sales, supporting the latter. The single currency has fallen to a fresh 2024 low just north of $1.06, though this is still within the $1.05 to $1.10 range that has prevailed for most of the time over the past year, while sterling has slipped to a circa five-month low of around $1.2425. This in turn leaves the euro-sterling cross little changed trading just below 85.5p.
Government bond yields resumed their ascent yesterday after a brief respite on Friday, with the firmer than forecast economic data contributing to the move higher which saw US, German and UK 10-year yields close up around 10bps on the day. Meanwhile, US stocks sagged again, with the S&P 500 in the US shedding 1.2% after losing 1.5% on Friday. European stocks finished in the black yesterday, gaining around half a percent, but they have opened on the back foot today, off around 1.5% in early trading.
Retail sales in the US posted another strong gain in March, increasing by 0.7% (in value terms) after advancing by almost 1% in February. Based on the retail sales and other data, the Atlanta Fed’s estimate of the run rate for GDP growth in Q1 is now a very solid 0.7% quarter-on-quarter, only marginally below the Q4 2023 outturn of 0.8%.
Fed member Williams says “we will need to start a process at some point to bring interest rates back to more normal levels, and my own view is that process will likely start this year,” adding that he didn’t see recent higher than expected inflation readings as a “turning point”. The market has pushed out the expected timing of a first rate cut to November, which of course has contributed to higher US yields and a stronger dollar recently.
UK labour market data published earlier this morning showed employment fell and unemployment rose in the three months to February, with the former down around 0.4% from the three months to January and the latter rising to 4.2% from 4.0%. Annual wage growth, as measured by regular weekly earnings, edged down to 6.0% from 6.1%, a bit higher than the consensus forecast (5.8%) and higher than the bank of England would like to see.
Economic data due today include industrial production and housing starts in the US and the ZEW survey of investor confidence in the Euro area. A number of Fed, ECB and BoE members are due on the wires as well today.