Dollar strengthens further
The dollar has advanced further, building on the gains made following Wednesday’s firmer than expected inflation data in the US. It has strengthened to around $1.1090 against the euro (its best level since early 2025) and $1.3265 versus sterling, up from about $1.1150 and $1.3325 respectively yesterday morning. EURGBP continues to trade in a fairly tight range, hovering just above £0.8350 at the start of play today. UK GDP data released a short while were in line with expectations – showing the economy expanded at a very solid pace in the third quarter of the year – and so have had little impact on the pound.
The US bond market was closed for Veterans Day, while German and UK yields weren’t much changed on the day, ending flat to marginally higher across the curve. Equity markets have shrugged off the firming of Fed rate hike expectations/rise in bond yields that followed this week’s US inflation data. The Nasdaq and S&P 500 both gained further ground yesterday, advancing by around 1.6% and 1.3% respectively, while European indices rose for a third straight session, adding another 1% or so.
The UK economy expanded by 0.7% quarter-on-quarter in Q3 2026 according to this morning’s GDP report, accelerating from 0.5% q-o-q in Q2, with consumer spending, business investment and exports all increasing on the quarter. On an annual basis, the economy grew by 1.9%, the fast pace of growth since the final quarter of 2024. The economy also ended Q3 on a positive note, with GDP increasing by 0.2% in September (from August).
ECB member Makhlouf says “price pressures (in the Euro area) appear largely confined to energy (and) wage growth is contained,” though he notes that indirect effects from the energy price shock “take time to work through supply chains, (which is) one reason inflation is still projected to rise in early 2027, (while) “wage-setting adjusts with a lag, so second-round effects will only show gradually.” The market remains almost fully priced for another 25bps hike in the ECB’s deposit rate at next month’s meeting (Dec 17th) , which would be the third quarter-point increase in the current hiking cycle.
For the day ahead, it is pretty quiet again on the economic data front with existing home sales for October and the regular weekly jobless claims scheduled in the US. A number of ECB and Fed members are due on the wires over the course of the day.