Dollar softer this morning
The dollar more or less held its own during yesterday’s session, having fallen back quite sharply from its immediate post-US CPI inflation highs on Wednesday, amid the release of mixed economic data, lower bond yields, and a recovery in equity markets. In remarks overnight, Fed Chair Kevin Warsh said he doesn’t “believe in saying now what I might do at the (monetary policy) meetings that we have over the balance of this year,” though the market took his non-committal stance as an indication that the central bank is likely to keep interest rates on hold at its next meeting in just under a fortnight’s time. This is weighing on the US currency this morning, with the euro trading at around $1.1240 and sterling moving above the $1.33 level. EURGBP is a touch softer relative to yesterday morning’s levels at £0.8440, just shy of its intra-week (and year-to-date) low of circa £0.8425 reached on Wednesday.
US government bond yields fell by 6-12bps across the curve, while German and UK yields were around 2-5bps lower on the day. European equity markets finished off their lows but still shed just under half a per cent, while US stocks recovered from early losses to end the day in positive territory (with the Dow Jones leading the way, registering gains of just over 1%). Asian stocks were on a firmer footing overnight, partially reversing Wednesday’s heavy losses.
Like Wednesday’s CPI data, yesterday’s producer prices (PPI) release in the US was firmer than expected, with core output prices rising by 0.5% on the month and by 5% year-on-year, the latter matching the 2026-to-date high reached in May-June. Separately, headline retail sales in September were a good bit stronger than expected, increasing by almost 1% from August, though excluding autos and gasoline sales, spending was more muted at +0.2% on the month.
It is a relatively quiet end to the week in terms of economic data, with industrial production and import prices (both for September) due in the US and a final reading of September CPI inflation scheduled in the Euro area. In relation to the latter, the flash reading showed headline inflation accelerated to 3.8% last month (from 3.2% in August), largely on the back of higher energy price inflation, while core inflation nudged up to 2.5% (from 2.4%).