Dollar regains some ground
US and European equity markets were on the back foot yesterday amid the latest bout of tariff uncertainty and ongoing AI-related concerns, while government bonds rallied with yields ending lower on the day. In FX, the dollar regained some ground during the course of the session. EURUSD and GBPUSD are trading at around $1.1790 and $1.3485 respectively this morning, down from yesterday’s best levels of about $1.1835 and $1.3535. EURGBP is little changed once again as it continues to hover just below £0.8750.
In equity markets, the S&P 500 shed 1% while the Euro Stoxx 600 finished down around half a percent. The latter is also marginally lower again at the open this morning. Government bonds staged a decent rally amid the weakness in stocks. This was concentrated mainly at the long end of the curve with US 10-year yields falling by around 5bps and equivalent German and UK yields about 3-4bps lower.
Fed Governor Waller – a noted ‘dove’ who dissented in favour of a 25bps rate cut at the central bank’s last monetary policy meeting – says that if upcoming data “support the idea” of a further improvement in the labour market (following January’s stronger than expected job gains of 130k), then it may be appropriate to keep policy on hold at the next meeting in March. The market continues to expect the next quarter-point cut in rates in July.
ECB President Christine Lagarde reiterates that the risks to the Euro area growth and inflation outlook remain ‘broadly balanced’, but says the central bank “has to be agile and determine whether something needs to be done” on interest rates on a meeting-by-meeting basis. Current market pricing continues to see a small chance of a cut in rates this year.
It is quiet on the economic data front today with consumer confidence and house prices in the US and the CBI’s latest retail sales survey in the UK. Members of the Bank of England MPC discuss the latest Monetary Policy Report at a meeting of the Treasury Committee, while a number of ECB and Fed officials are scheduled to speak during the course of the day.