Euro and sterling holding in versus $

The euro and sterling held in reasonably well against the dollar notwithstanding elevated oil prices, rising bond yields, and soft equity markets. They are trading at around $1.17 and $1.35 respectively this morning, off lows yesterday of circa $1.1675 and $1.3465, while EURGBP is marginally firmer at £0.8670. The Fed announces its latest interest rate decision later today. It is almost certain to keep policy on hold and may indicate steady rates ahead as it balances upside risks to inflation but also downside risks to growth and employment. The market is currently pricing in essentially unchanged rates for the remainder of this year.

Government bond yields backed up further as oil prices rose above $110 a barrel, led by the short-end of curves with 2-year yields increasing by 4-8bps across the main markets. Oil prices are heading further north this morning (Brent is at $112 p/b) on reports that Trump has told his officials to prepare for a lengthy blockade of the Strait of Hormuz. Equity markets were on the back foot again yesterday, with European and US stocks shedding about a half a percent or so.

Euro area consumer inflation expectations for 1-year and 3-years ahead “increased significantly” in March according to the ECB’s latest survey, rising to 4.0% and 3.5% respectively from 2.5% for both in February, while 5-year ahead expectations “increased slightly”  to 2.4% from 2.3%. At the same time, expectations for economic growth over the next 12 months “became more negative, while the expected unemployment rate in 12 months’ time increased.”

For the day ahead, as well as the Fed policy announcement, the Bank of Canada decides on rates also (expected to stay on hold), while economic data due include a flash reading for inflation in Germany in April (likely to have increased further this month); the Economic Sentiment Indicator for April and money supply/credit  growth for March in the Euro area; and housing starts, capital goods orders and the trade balance (all for March) in the US.