Euro a touch softer this morning
With the US and UK on public holiday and little or nothing in the way of economic data, it was very quiet in financial markets yesterday. After popping higher against the dollar early on, the euro and sterling remained in tight ranges thereafter. The single currency is a touch softer this morning though following the release of weaker than expected French inflation data a short while ago, trading at about $1.1350 and £0.8380 against the dollar and sterling respectively, while the pound is hovering around the $1.3550 area against the US currency.
European bonds had a mixed session with short-dated yields edging higher but long-dated yields nudging down, though the moves overall were marginal. Japanese and US 10-year yields are both lower overnight (fuelled by speculation about potentially reduced bond issuance by the Japanese authorities) with equivalent European and UK yields following suit this morning. In equity markets, European stocks ended almost 1.5% higher on the day, reversing a good portion of Friday’s Trump-inspired losses.
Inflation in France has come in a good bit lower in May than the consensus expected. The annual rate of (EU-harmonised) inflation fell to 0.6% this month (versus 0.9% forecast), down from 0.9% in April and the lowest reading since the end of 2020. An initial reading for Euro area inflation in May will be published next Monday.
ECB member Simkus says “the risks that inflation will be below the (2%) goal in the future have increased,” adding that he sees “scope for an interest rate reduction” at next week’s monetary policy meeting. The market is fully priced for a 25bps cut in the deposit rate (to 2%) on June 5th and expects another quarter-point reduction by October at the latest.
Looking to the day ahead, economic data due include the Economic Sentiment Indicator (ESI) for May in the Euro area and consumer confidence, also for May, durable goods orders (April) and house prices (March) in the US.