Euro and sterling in retreat
The euro and sterling have retreated further against the dollar – which perhaps shouldn’t be too surprising given the scale of their recent gains against the US currency – with both shedding in and around half a cent to trade at about $1.1080 and $1.3180 respectively, leaving EURGBP a touch softer at around £0.8410 (which is not far off its 2024 to date low of about £0.8380 in mid-July). Today’s Euro area and US inflation data should copper-fasten market expectations for rate cuts from the ECB and Fed next month and may not have a significant impact on the main currency pairs.
Government bond yields nudged up a little yesterday on the back of the latest estimate of US GDP growth in the second quarter, which was revised up a touch from the first estimate. European equities had a positive session, gaining around 1%, though a rally in US stocks fizzled out to leave the S&P 500 flat on the day.
Ahead of what the market expects to be the first in a series of rate cuts by the Fed next month, one of its members, Bostic, has said officials have begun discussing where rates will settle in the longer-term, adding that he has “pencilled in” around 3%.
The annual rate of headline inflation in Germany slowed quite sharply in August, according to the flash reading, falling to 2.0% from 2.6% in July, though there was a much more modest decline in core inflation. Headline inflation also fell in France, Spain and Ireland this month according to the latest readings.
Today’s Euro area inflation data are expected to show the headline rate declining to 2.2% this month from 2.6% in August, according to the consensus forecast, with the core rate seen dipping very slightly to 2.8% from 2.9%. Regarding the PCE inflation data in the US, both headline and core prices expected to have increased by 0.2% this month, which would leave the year-on-year headline inflation rate unchanged at 2.5% but would see the core rate nudge up to 2.7% from 2.6%
Other economic data due today include Euro area unemployment; consumer spending and consumer confidence in the US; and mortgage approvals in the UK.