Dollar remains on the front foot

The euro and sterling remain under pressure against the dollar, as the latter continues to benefit from ongoing weakness in equity markets, slipping to around $1.0825 and $1.2925 respectively. EURGBP fell to a low of about £0.8350 after the Bank of England (BoE) left interest rates unchanged following yesterday’s monetary policy meeting, but has since recovered to trade at around £0.8375 this morning.

 UK government bonds underperformed yesterday, with yields ending slightly higher, as the market pared back expectations for BoE rate cuts for the rest of the year (a bit less than 50bps is now priced in). Elsewhere in bond markets, US and German yields ended a touch lower on the day. In equity markets, European stocks shed around 1%, while US stocks erased some of their earlier losses to finish down around 0.3%.

The Bank of England MPC left interest rates unchanged at 4.5%, as expected, and reiterated that a “gradual and careful approach” to easing policy was warranted. It noted that, while “the underlying disinflationary process was expected to continue”, there was “no presumption that monetary policy was on a pre-set path over the next few meetings.”

The latest GfK survey shows consumer confidence in the UK remains “fragile”, notwithstanding a modest improvement this month, while public finances data released a short while ago shows borrowing for the financial year to date, at £132bn, was £14.7 billion more than at the same point in the last financial year and some £20bn higher than forecast by the OBR, maintaining the pressure on Chancellor Reeves ahead of next week’s Spring Statement.

It’s a very quiet end to the week in terms of economic data, with consumer confidence due in the Euro area and the CBI industry survey scheduled in the UK.