Dollar weaker again

The euro has advanced further against the dollar and is trading at around $1.10 this morning, more or less matching the levels it reached last week following the more dovish than expected Fed meeting, while sterling has also strengthened against the US currency to about $1.27, with a mixed bag of UK economic data released earlier this morning having little impact. This in turn sees EURGBP largely unchanged at 86.7p

Government bond yields were flat to marginally higher yesterday, while equity markets were mixed, with European stocks ending slightly lower but the S&P 500 chalking up solid gains (+1.1%).

The UK economy is now estimated to have contracted slightly in the third quarter according to this morning’s data, with GDP falling by 0.1% (revised down from an initial estimate of 0.0%) having been flat in Q2 (revised from +0.1%). On an annual basis, the economy grew by just 0.3% from the third quarter of 2022.

There was better news in relation to this morning’s other UK release, with retail sales increasing by a much stronger than expected 1.3% (in volume terms) in November, having been flat in October, to leave them a touch higher (+0.1%) than in November 2022, the first positive year-on-year reading since early last year.

Economic data due today include the latest reading for PCE inflation in the US, which is the Fed’s target measure of inflation. The consensus expects the headline rate to have fallen to 2.8% in November from 3.0% in October, which would be the first sub-3% reading since March 2021, while the core rate is seen edging down to 3.3% from 3.5%. Other US data scheduled for today include consumer spending, consumer confidence, new home sales and capital goods orders.