Dollar retreats

Following its post-Fed meeting rally over the latter part of last week, the dollar gave up some ground during the course of yesterday’s session. The euro is back up to about $1.1785 against the US currency this morning, from lows early yesterday of around $1.1725, while sterling is trading just north of $1.35, up from its lows yesterday of circa $1.3450. The pound continues to trend down against the euro though and at £0.8720 is not far off its year-to-date low of about £0.8770 in late July. The main economic data releases today are the flash PMIs for September due in the Euro area, UK and US.

It was relatively quiet in government bond markets. US yields nudged higher and are now around 10-15bps off their pre-Fed meeting lows (of around 3.50% and 4% in the case of 2-and 10-year yields respectively), while German and UK yields were both broadly flat. It was another day, another record high for US stocks, with the Nasdaq gaining around 0.7% and the S&P 500 up half a percent. European equities underperformed, shedding about 0.3% on the day.

A number of Fed members yesterday cautioned about further cuts in interest rates, citing concerns about upside risks to the outlook for inflation. This was in contrast to Fed Governor (and Trump appointee), Steve Miran, who reiterated his call for another 125bps reduction in rates by the end of this year, saying leaving rates where they are risks “unnecessary layoffs and higher unemployment.”

ECB member Nagel says he’s “not concerned about the current valuation level of the euro,” noting that “simply looking at the euro’s gains against the US dollar exaggerates the extent to which (Euro area exports) are being burdened.” While the single currency has risen by around 14% against the dollar so far this year, its gains against a basket of currencies of the Euro area’s main trading partners has been around half this at just under 7%.

For the day ahead, as mentioned, flash PMIs for September are scheduled in the main economies, while the current account balance and a couple of regional manufacturing surveys are also due in the US.