Dollar remains lower

Yesterday’s inflation data in the US was firmer than the consensus forecast but did little or nothing to shift the dial in terms of expectations for a first Fed rate cut, with the market still seeing about a 70% chance of a quarter-point reduction in March. The dollar is little changed, trading close to its lows of the week against the euro and sterling at around $1.0980 and $1.2780 respectively. EURGBP is marginally lower this morning trading just below £0.86

US bond yields briefly spiked higher post the inflation data but fell quite sharply into the close, with 2- and 10 year yields ending about 10bps and 5bps lower respectively on the day (the latter are trading back below 4% again). US equity markets also rallied into the close with the S&P 500 reversing earlier losses to finish flat overall.

The joint US-UK strikes against Houthi military targets in Yemen overnight, in response to the latter’s attacks on ships in the Red Sea, hasn’t impacted markets very much this morning although oil prices are higher with Brent up almost $2 to over $79 per barrel.

The annual rate of  headline CPI inflation in the US rose to 3.4% in December, up from 3.1% in November and higher than the consensus forecast of 3.2%. The core inflation rate nudged down to 3.9% from 4%, slightly higher than the 3.8% reading expected.

Fed member Mester says the “December inflation report shows there’s work to do” to get inflation back to target, adding that “March is probably too early in my estimate” for an interest rate cut.

Economic data published earlier this morning show GDP in the UK rose by 0.3% in November, having fallen by 0.3% in October. GDP over the three months to November was 0.2% lower than in the June-August period.

The data calendar is light for the rest of today with producer prices in the US the main release of note.