Dollar still on the front foot

The euro and sterling have both lost ground against the dollar to trade close to $1.07 and below $1.2350 respectively this morning, leaving the single currency-pound exchange rate still hovering just under 87p (although it did trade above this level for a time yesterday).

UK government 2-year yields have risen by the best part of 25bps to just shy of 3.40%, as the market prices in higher Bank of England interest rates following the stronger than expected inflation data yesterday, with 10-year yields up about 10bps to 4.25% (though, interestingly, rising yields have done nothing to support sterling).

Elsewhere in government bond markets, US 10-year yields continue to nudge higher and are now trading at about 3.75% while equivalent German yields are largely unchanged again at just under 2.50%.

The minutes of the Fed’s early May meeting showed that “several participants noted that if the economy evolved along the lines of their current outlooks, then further policy firming after this meeting may not be necessary”, while “some participants commented that, based on their expectations that progress in returning inflation to 2 percent could continue to be unacceptably slow, additional policy firming would likely be warranted at future meetings”

The German economy contracted for a second consecutive quarter in Q1 2023, with GDP falling by 0.3% after a decline of 0.5% in the final quarter of last year

Economic data due today include jobless claims and a second estimate of GDP growth in the US

 

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