Dominant dollar

The euro and sterling have lost more ground to the still dominant dollar, with both trading at fresh lows of $1.0480 and $1.2080 respectively this morning. This leaves EUR/£ again largely unchanged at around 86.7p.

Government bond yields resumed their ascent yesterday. US and German 10-year yields rose by around 10bps to 4.68% and 2.92% respectively, while UK yields increased by the best part of 15bps to close at 4.56%.

Equity markets were under pressure as bond yields rose. European stocks shed almost 1% yesterday, though the S&P 500 in the US managed to rally into the close to end flat on the day.

The ISM manufacturing index in the US remained below the key 50 level in September, though it improved to 49.0 from 47.6 in August pointing to a slower pace of decline in activity in the sector.

Fed Governor Barr says “in my view, the most important question at this point is not whether an additional rate increase is needed this year or not, but rather how long we will need to hold rates at a sufficiently restrictive level to achieve our inflation goal.”

Bank of England MPC member Mann, who voted for a 25bps hike in interest rates at the September meeting,  says “resilient domestic demand and…persistent price pressures…requires a more restrictive monetary policy stance.”

Economic data due today include job openings in the US, which the Fed is watching closely for signs of a softening of labour demand in the economy.