Dollar regains some ground

The first day of trading in 2024 saw some further retracement of the recent moves in currency markets. The dollar regained another cent or so  against both the euro and sterling and is trading at around $1.0960 and $1.2640 respectively this morning. This in turn leaves EURGBP largely unchanged at £0.867.

Sovereign bond yields backed up further yesterday amid a modest paring back of market expectations for the scale central bank rate cuts this year, although they closed off their highs of the day (UK 10-yields increased by around 10bps and equivalent US and German yields by about 5bps). In equity markets, European stocks ended marginally lower while the S&P 500 shed around half a percent.

Bond yields were also pressured for a time by a short-lived spike in oil prices related to concerns about attacks on vessels in the Red Sea, with Brent crude rising to around $79 per barrel before subsequently more that revering its move higher, falling back to just under $76 p/b.

The impact of the ECB’s tightening policy continues to be evident in weak credit growth in the zone, with data published yesterday showing bank lending to households slowing further in November (to 0.5% year-on-year) and lending to corporates flat on November 2022 levels.

Economic data due today include the ISM manufacturing index and job openings in the US. The Fed publishes the minutes of last month’s monetary policy meeting, which as noted yesterday should garner ever greater attention than normal given that the question of the timing of rate cuts was discussed.