EURUSD off yesterday’s lows
Despite some hawkish ECB commentary yesterday, which pushed up euro area bond yields relative to US yields, the euro lost ground to the dollar, hitting a low for the day of around $1.04. Trump’s latest tariffs threat appeared to weigh on the currency, and also on sterling which was off around half a cent against the dollar at one stage. The euro is firmer this morning though, trading at about $1.0435, as is the pound which is hovering just above $1.26. This leaves EURGBP at around £0.8280, little changed from where it was trading yesterday morning.
In bond markets, German yields closed 5-6bps higher after ECB member Schnabel said it may soon be time to pause or halt interest rate cuts. UK yields rose by something similar, while US yields in contrast ended slightly lower on the day. In equity markets, Trump’s tariffs threat weighed on European stocks, which shed the best part of 1.5%, while US indices chalked up very modest gains.
In her comments, Schnabel said that, as monetary policy “is getting closer to no longer being restrictive, we are getting closer to the point where we may have to pause or halt our rate cuts.” She noted that both services inflation and wage growth “are still at an uncomfortably high level”, and while “our projections foresee a deceleration of both…this still needs to materialise.”
The minutes of last month’s Fed monetary policy meeting published yesterday evening contained no surprises. They noted that reduced downside risks to the outlook for the labour market and economic activity, increased upside risks to the outlook for inflation, and uncertainty regarding the economic effects of potential government policies, were reasons “to take a careful approach in considering” further interest rates cuts.
Looking to the day ahead, it is quiet enough again on the data front with weekly jobless claims due in the US and consumer confidence and construction output scheduled in the Euro area. A number of Fed/ECB members are due to speak during the course of the day