Euro a touch firmer
Friday’s flash PMIs for February suggest economic activity in the Euro area and UK remains subdued at the beginning of 2025 and is slowing in the US, while the latest consumer confidence survey in the US showed sentiment ebbing and inflation expectations rising reflecting fears of tariff-induced price increases. The response in markets saw bond yields fall and US equity markets sell off quite sharply, though the main currency pairs weren’t much changed. The euro is a touch firmer this morning though, trading at around $1.0480 against the dollar and £0.8290 against sterling, following yesterday’s elections in Germany which contained no surprises really with the result broadly in line with the opinion polls.
The US led a decline in government bond yields on Friday with 10-year yields falling by about 7bps, while equivalent German and UK yields were down around 5bps. In equity markets, European stocks close marginally higher on the day, but the S&P 500 shed the best part of 2% albeit from close to record high levels.
The flash Purchasing Managers Indices (PMIs) for February point to continuing weak economic activity in the Euro area and the UK, with the Composite Index running just above the key 50 level in both (at 50.2 and 50.5 respectively, largely unchanged from the January readings), while the equivalent index for the US fell by more than 2 points to 50.4 – with a notable decline in the services index to below 50 – pointing to moderating economic growth from the solid pace seen at the end of last year.
Consumer confidence in the US fell again this month according to the latest University of Michigan survey, while consumers short- and medium/long-term inflation expectations rose, the latter to their highest level since mid-1995. The survey reported that “fears of tariff-induced price increases” are weighing on sentiment and contributing to the rise in inflation expectations.
Looking to the week ahead, it is quiet enough on the economic data front with a final reading for Euro area inflation in January today and the ECB’s negotiated wage growth indicator tomorrow, while PCE inflation for January is due in the US on Friday. There are quite a number of ECB, Fed and Bank of England members scheduled to speak over the course of the week.