Dollar remains on the front foot
The euro and sterling remain under pressure against the dollar. They dipped to lows yesterday of $1.09 and $1.3020 respectively following firmer than expected US CPI inflation data for September, but both have recovered a touch since to trade at around $1.0940 and $1.3060 this morning. EURGBP remains confined to a relatively narrow range, trading at about £0.8375 this morning. UK GDP data released earlier were in line with expectations and have had little impact on the pound.
US bond yields closed lower yesterday, with 2-year yields down around 6bps, despite the firmer inflation data which saw Fed rate cut expectations pared back some more (about 37.5bps is now priced for the remainder of this year). German yields also nudged down a touch, while UK yields were marginally higher on the day. In equity markets, both European and US stocks closed slightly in the red, following solid gains in Wednesday’s session.
In the US, headline and core consumer prices rose by 0.2% and 0.3% month-on-month respectively in September, slightly ahead of the consensus forecast. This saw the annual rate of headline inflation nudge down to 2.4% from 2.5% in August, but the core inflation rate nudge up to 3.3% from 3.2%. The Fed expects core inflation to remain “sticky” over the closing months of 2024 before heading lower during the course of 2025.
The UK economy expanded by 0.2% month-on-month in August according to this morning’s GDP report, having recorded no growth at all in both June and July. GDP rose by 0.2% over the three months to August (from the three months to May), pointing to a moderation in the pace of growth in the third quarter – as expected by the Bank of England – after GDP increased by above-trend rates of 0.7% and 0.5% in Q1 and Q2 respectively.
The minutes of the ECB’s September monetary policy meeting, published yesterday, noted that the economic outlook for the Euro area had become “more concerning” and that “a faster pace of rate cuts would likely be appropriate if…downside risks to the growth outlook materialised.” The latest PMI data suggest downside risks to growth are materialising, with the ECB looking set to cut rates again next week.
Looking to the day ahead, the main economic data releases are producer prices and the University of Michigan survey of consumer confidence/inflation expectations in the US, while a few Fed members are scheduled to speak over the course of the day.