Dollar softer again

The dollar has lost some further ground amid falling bond yields and rallying equity markets, weakening to around $1.0630 and $1.22 against the euro and sterling respectively. This leaves EUR/£ broadly unchanged once again at 87p.

The post-Fed meeting decline in longer-term US bond yields continued yesterday, with 10-year yields almost 10 basis points lower at 4.66%. There was also a sizeable decline in UK 10-yields – which fell by more than 10bps to 4.38% – after the Bank of England left interest rates unchanged for a second meeting running and indicated it may be done hiking.

Equity markets rose for a fourth straight session with the ongoing fall in bond yields prompting sizeable gains in US and European stocks, which both gained almost 2% on the day.

The Bank of England MPC left interest rates unchanged at 5.25%, although three of the nine members of the Committee voted to hike by 25bps (one fewer than at the September meeting), as it noted signs higher interest rates are having an impact on the economy and labour market. It sees inflation falling quite sharply in the short-term albeit still remaining well above target, hence it believes monetary policy will “need to be restrictive for an extended period of time”.

ECB member Schnabel says the central bank “cannot close the door to further rate hikes,” noting that the “final push” to get inflation down to the 2% target is “often the hardest,” adding that “the disinflation process during the last mile will be more uncertain, slower and bumpier,”

The focus today is on the latest employment report in the US. The consensus expects the economy to have added about 180k jobs in October (after +336k in September), with the unemployment rate seen holding at 3.8% and annual earnings growth expected to moderate to 4% (from 4.2%).