Dollar remains on the front foot
The dollar gained more ground yesterday amid a slide in equity markets. The euro has dipped below the $1.15 level against the US currency – though it is still around a cent off its second half of the year to date low of just under $1.14 in late July – while sterling has fallen to around $1.3030, its lowest level since the middle of April. The pound has also lost ground to the euro, weakening to new 2025 to date lows of about £0.8820, with the prospect of a tight budget in the UK later this month – signalled by the Chancellor in remarks yesterday – weighing on the currency.
US stocks sold off yesterday on the back of concerns about rich tech valuations, in turn related to the recent surge in AI-related capital expenditure, with the Nasdaq shedding about 2% (though for some perspective it’s worth bearing in mind that it was only this day last week that the Nasdaq set new all-time-highs and is down 2.5% since). Asian markets were generally in the red again overnight, and European stocks are off almost 1% this morning (having lost around 0.5% yesterday), while US stocks are set to open lower again later based on the futures market.
The weakness in equity markets contributed to a very modest decline in US government bond yields, which fell by 2-3bps across the curve, while German and UK yields ended broadly flat on the day. Yields generally are edging lower this morning as stocks continue to struggle.
ECB member Rehn says “economic growth in the euro area remains sluggish but resilient, while inflation risks are two-sided – upward from goods and food prices, and possible supply disruptions; downward from cheaper energy, a stronger euro and easing wage pressures” (hence) in this environment, it’s crucial to maintain full flexibility in interest rate decision-making,” with the central bank “not committing” to any specific rate path.
Looking to the day ahead, there are a couple of economic data releases in the US that will garner attention. The ADP publishes its latest employment report – the ADP report has assumed greater importance recently given the absence of official labour market data – with the consensus expecting a small rebound in private sector employment in October (+30k) following a small decline (-32k) in September, while the ISM publishes its latest (October) index of activity in the large and important services sector of the economy. Other releases due include final readings for the October Services PMIs in the main economies and producer prices in the Euro area.