Dollar on the front foot this morning

The euro traded between $1.1680 and $1.1780 against the dollar last week and opens this morning at around $1.17. Sterling traded up to a high of almost $1.3530 and down to a low of about $1.3390 over the course of the week and is hovering around $1.3450 at the start of play today. Both are down around half a cent from Friday’s closing levels, which is mainly a response to the fall-out from political developments in Japan where the unexpected outcome of the ruling LDP party’s leadership election has contributed to a sharp fall in the yen against the dollar overnight. The euro is a touch softer against the pound, dipping just below the £0.87 level, with political uncertainty in France also weighing on the single currency this morning. Looking to the week ahead, it’s extremely quiet on the economic data front, which has nothing to do with the government shutdown in the US, but there are plenty of central bank members scheduled to speak over the coming days, while the minutes of last month’s Fed meeting, at which it resumed lowering interest rates, are published on Wednesday.

In government bond markets, US 10-year yields fell by around 7bps last week while equivalent German and UK yields were down around 5bps, though yields generally have backed up a bit at the open this morning  with French bonds underperforming. In equity markets, European stocks are a touch lower at the off today (notwithstanding a surge in Japanese stocks overnight) having chalked up very strong gains of almost 3% last week, while the S&P 500 closed out Friday at a new record high on the back of an increase of around 1% on the week.

In the US, Friday’s ISM services index for September was weaker than expected. It fell to 50.0 from 52.0 in August, with the business activity and employment sub-indices both in contraction territory (<50) last month, pointing to softening growth in this important sector of the economy.

For the day ahead, economic data due include retail sales in the Euro area and the construction PMI in the UK, while ECB President Lagarde speaks on the economy to the European Parliament’s Economic and Monetary Affairs Committee