ECB meeting the focus this week

Having both shed around 3 cents against the dollar the previous week, the euro and sterling remained within relatively narrow ranges of around $1.09-$1.10 and $1.3020-$1.3130 respectively last week. They kick off at about $1.0930 and $1.3065 this morning, with EURGBP hovering just above £0.8360. There’s plenty for markets to digest over the coming week. Most notably, the ECB announces its latest interest rate decision on Thursday – it is expected to lower the deposit rate by another 25bps taking it to 3.25% – while economic data scheduled include retail sales and industrial production in the US and wage growth and CPI inflation in the UK.

While US 10-year bond yields continued to nudge higher on Friday, 2-year yields were largely unchanged and finished almost 10bps off Wednesday’s intra-week highs (of around 4%), having risen by circa 50bps over the preceding couple of weeks (the latter an indication of the degree to which the market has recently re-priced expectations for Fed rate cuts). German and UK yields, meanwhile, ended broadly flat on Friday.

In equity markets, European and US stocks ended the week on a positive note with both adding around 0.7% on Friday. Over the weekend, the authorities in China said they will adopt further “stimulus” measures to support their economy, which may help sentiment at the start of this week.

Fed member Logan says “the recent data that we’ve been seeing on inflation has been very welcome,” noting the economy is “strong and stable” and that the central bank should very gradually “chart its way” towards a neutral level of interest rates.

It is quiet on the economic data front today with little or nothing of note scheduled for release. Looking at the remainder of week, the latest labour market and CPI inflation reports in the UK are due tomorrow and Wednesday respectively, while Thursday sees the release of a raft of US data including retail sales, industrial production and jobless claims.