Euro a touch softer

The euro’s rally against the dollar ran out of steam during the course of yesterday’s session and sees it back below $1.09 this morning (at about $1.0880). Sterling traded up to a new 2025 high of almost $1.2990 against the US currency, but it has since eased to around $1.2960. This leaves the single currency a touch weaker against the pound at the start of play today, trading just under £0.84.

In government bond markets, short-dated yields increased amid some paring back of rate cut expectations across  the main central banks, with US, German and UK yields 4-5bps higher on the day. US and UK 10-year yields also increased (by 3-4bps), but equivalent German yields fell back a little. Meanwhile, there was some relief for equity markets with European and US stocks chalking up gains of around 0.5% and 1% respectively, though this may be short-lived with European indices on the back foot again at the open this morning.

Yesterday’s CPI inflation data in the US came in slightly softer than expected. Both headline and core consumer prices rose by 0.2% in February (from January), versus a forecast increase of 0.3%, which resulted in the annual rates of headline and core inflation nudging down to 2.8% and 3.1% respectively last month, from 3% and 3.3% in January. While the Fed will be encouraged by these latest numbers, it’s still likely to sit on its hands again at next week’s monetary policy meeting.

In a speech yesterday, ECB President Christine Lagarde noted that “trade fragmentation and higher defense spending could in principle push up (Euro area) inflation,” but “US tariffs could also lower demand for EU exports and redirect excess capacity from China into Europe, which could push inflation down.” In any case though, she said the central bank will remain “committed” to meeting its 2% inflation target over the medium-term.

Economic data due today include industrial production in the Euro area and producer prices (PPI) and the regular weekly jobless claims in the US. There are also a number of ECB members due on the wires over the course of the day