ECB to stay on hold today
Sterling rose to post-UK inflation data highs of $1.3044 against the dollar and 83.83p versus the euro yesterday before giving up ground, while it has edged lower again this morning following UK labour market data released earlier and is currently trading at around $1.2990 and 84.1p respectively. The euro, meanwhile, has held onto most of the gains it made against the dollar yesterday, trading at about $1.0930, ahead of the ECB’s latest interest rate announcement later today.
Government bond yields generally finished a touch lower yesterday, having risen earlier in the session, as equity markets came under pressure, with the Euro Stoxx 50 and the S&P 500 both shedding more than 1% on the day.
While this morning’s UK labour market data were broadly in line with expectations, they were notable nonetheless. In particular, private sector wage growth – which the Bank of England (BoE) is monitoring closely – slowed to 5.6% year-on-year in the three months to May from 6% in the three months February, and for the month of May alone fell sharply to 4.9% from 5.9% in April. This should provide a good deal of comfort to the BoE, and keeps alive the chances of an interest rate cut next month.
Fed Governor Waller struck a relatively dovish note in a speech yesterday, saying that, with “the economy growing at a more moderate pace, labor supply and demand apparently in balance, and inflation slowing from earlier this year, we are getting closer to the time when a cut in (interest rate) is warranted”.
The ECB announces its latest interest rate decision today. When it lowered interest rates in June, it indicated clearly that it was unlikely to cut them again as soon as this month’s meeting. However the ECB still remains reasonably confident that inflation is on a path back to 2%, so the next rate cut is likely to come in September, but whether it tees up the market for such a move following’s today’s meeting remains to be seen.
It is reasonably quite on the economic data front today, with construction output due in the Euro area and the regular weekly jobless claims scheduled in the US.