Dollar recovers some ground

The euro and sterling have given up some of last week’s solid gains against the dollar. The single currency has fallen back to $1.07 and the pound has weakened to just shy of $1.23, which in turn sees EUR/£ little changed this morning trading at around 86.8p.

Sovereign bond yields have also retraced some of last week’s move lower, with US, German and UK 10-year yields rising by around 10bps yesterday. In equity markets, European stocks closed marginally lower, and US stocks marginally higher, following last week’s sizeable gains.

ECB member Holzmann says the central bank shouldn’t “declare victory too early” (on inflation) and “should stand ready to hike (interest rates) again if needed.”. The market, for its part, believes the ECB is finished raising rates and sees it beginning to lower them early next year.

Bank of England’s Pill says inflation in the UK is going to fall to levels “more comparable to what we’re seeing in the rest of the world.” Headline inflation is currently running at 6.7% but is expected to fall below 5% in the current quarter, helped by lower domestic energy bills. On interest rates, he says over time he expects them to settle somewhere between the current “restrictive” level (of over 5%) and the “too low” levels (near 0%) pre-pandemic.

Global supply chain pressures eased further in October, according to the New York Fed’s index (GSCPI), which fell to a record low last month. Underling goods inflation has been falling steadily recently, notably in the US, where it is running at 0% according to the September CPI report, down from a peak of over 12% early last year,

Economic data due today includes producer prices in the Euro area and the trade balance in the US, while a number of Fed members are scheduled to speak during the course of the day.