Dollar remains under pressure
The dollar lost further ground yesterday following the Fed’s rate cut on Wednesday, though it did manage to end off its lows of the day. The euro has been one of the main beneficiaries from the US currency’s post-Fed weakness, gaining around a cent to trade just shy of $1.1750. Weaker than expected UK GDP data released a short while ago are weighing a little on sterling, which is trading just below $1.34 against the dollar and at about £0.8770 versus the euro. The GDP data suggests the Bank of England will follow the Fed in cutting interest rates at next Thursday’s monetary policy meeting.
US government bond yields, which fell immediately following the Fed’s rate decision, headed further south for a time yesterday before reversing course to finish the New York session broadly flat overall, while German and UK yields had earlier closed marginally lower on the day. UK yields are nudging lower again this morning post the soft GDP data. In equity markets, European stocks had a very positive session, gaining almost 1%. US stocks reversed early losses to close in positive territory (and at a new all-time high) in the case of the S&P 500 and only marginally lower in the case of the Nasdaq (which had been off more than 1% at one stage following Oracle’s weaker the expected results).
The UK economy contracted for a second month running in October according to this morning’s data, with GDP down 0.1% after falling by 0.1% as well in September, as declines in output in the services and construction sectors more than offset an increase in industrial output. Over the three months to October GDP fell by 0.1%, a notable deterioration from growth of 0.2% in the three months to July and 0.7% in the February-April period. The weaker than expected data should copper-fasten a rate cut at next Thursday’s Bank of England meeting.
It is extremely quiet for the rest of the day in terms of economic data, with little or nothing of note scheduled for release. We will hear from a few Fed members over the course of the day, including the head of the Chicago Fed (Goolsbee) who dissented in favour of keeping interest rates on hold at Wednesday’s monetary policy meeting.