Dollar remains King
The euro and sterling had just the briefest of respites against the dollar yesterday following the release of the latest US CPI report,both popping higher to reach their best levels of the day of $1.0650 and $1.2770 respectively, before resuming their descent. They are around a cent lower this morning trading at $1.0550 and $1.2680 to bring their post-US election decline to around 4 cents, a fairly sharp and rapid fall. EURGBP has been confined to a range of about £0.8260 to £0.8350 over the past week or so and is trading just below £0.8320 this morning.
The dollar’s gains yesterday came notwithstanding a decline in shorter-dated US bond yields – as the market priced in a greater chance of a Fed rate cut next month after the CPI inflation data (now seen at about 70/30 from less than 50/50 previously) – with 2-year yields falling by around 6bps, while 10-year yields ended marginally higher. Equivalent UK and German yields edged up on the day. In equity markets, both European and US stocks ended largely unchanged.
The latest US inflation data were in line with market expectations. Headline and core consumer prices rose by 0.2% and 0.3% month-on-month respectively in October, with the annual rate of headline inflation nudging up to 2.6% from 2.4% in September and the core inflation rate remaining at 3.3%.
Fed member Logan says the central bank will “most likely need” to cut interest rates further, though she adds that “it’s difficult to be sure how many cuts may be needed and how soon they may need to happen”. Her Fed colleague Schmid struck a similarly cautious note, saying “it remains to be seen how much further interest rates will decline or where they might eventually settle.”
On the data front today are Euro area GDP and employment for the third quarter – the first GDP estimate for Q3 released previously showed quarterly growth picked up to 0.4% from 0.2% in Q2 – and industrial production, while producer prices and the regular weekly jobless claims are due in the US. A number of Fed members are due on the wires today, including Powell who will speak on the economic outlook, while the ECB publishes the minutes of its recent monetary policy meeeting.