Euro off its lows

The euro drifted down further against sterling for a time during the course of yesterday’s session, to an intra-day low of 84.4p, before recovering a little, while softer than expected UK labour market released earlier this morning has helped it nudge up a bit more to around 84.6p. EURUSD is also off yesterday’s low trading at about $1.0760, while the pound has given back some of its gains against the dollar following this morning’s UK data to trade at around $1.2720 (still off yesterday’s low of just under $1.2690).

French bonds and stocks underperformed yesterday amid political uncertainty in the country following the calling of snap legislative elections, with 10-year government bond yields increasing by almost 15bps and the equity market shedding almost 1.5%. Italian government bonds were also hard hit, with 10-year yields also rising the best part of 15bps, with more modest but still sizeable enough increases in yields in other Euro area countries. There seems to be some relative calm returning this morning though, with yields generally little changed in early trading.

UK labour market data released this morning show employment fell and unemployment rose in the three months to April, while private sector wage growth – which the Bank of England (BoE) is watching closely – eased a little further albeit still remaining elevated. Employment declined by 0.4% in the three months to April (from the three months to January) and was 1.1% lower than in the same period a year earlier, while the unemployment rate nudged up to a circa 30-month high of 4.4% (and has now risen by almost a full percentage point from its low in August 2022). Private sector wage growth dipped to 5.7% year-on-year in April, from 5.9% in March and 6.2% at the end of last year. All told, the data keep alive the possibility of a BoE rate cut in August, when the general election is out of the way.

ECB President Christine Lagarde says it may not be a straight line lower for interest rates following last week’s cut, adding that “there might be periods where we hold rates again.” She also acknowledged that recent inflation numbers “could have been better,” but overall the Governing Council “felt that disinflation was sufficiently advanced and would continue to progress over the next 18 months” to allow it to cut rates.

It is very quiet on the economic data front today with little of note due. The Fed begins its two-day monetary policy meeting, while there are a number of ECB members scheduled to speak over the course of the day.