Euro drifting lower
The euro is drifting lower ahead of the ECB’s interest rate announcement later in the week. It has dipped below the $1.09 level against the dollar, trading at about $1.0890 this morning, and has slipped to £0.8340 against sterling. The pound is marginally lower against the dollar at around $1.3050. UK labour market data released earlier this morning were something of a mixed bag relative to market expectations, but in any case have not had much impact on sterling.
The US bond market was closed yesterday, while elsewhere, German and UK government yields edged slightly higher on the day (though that is being reversed in early trading this morning in line with a fall in the oil price). In equity markets, positive sentiment prevailed at the start of the week, with European and US stocks chalking up gains of around 0.7% and the S&P 500 closing at yet another all-time high.
The unemployment rate in the UK continued to nudge down in the three months to August according to this morning’s labour market data, dipping to 4.0% from 4.1% in the three months to July (and a recent peak of 4.4% in March-May) amid an increase in employment over this period. There was good news for the Bank of England in relation to wage growth, with the annual increase in both whole-economy and private sector average weekly earnings easing further in June-August, to 4.9% and 4.8% respectively (and to 4.6% and 4.5% in August alone).
Fed Governor Waller says the central bank should “proceed with more caution on the pace of rate cuts than was needed at the September meeting” (when it cut by 50bps), adding that, “while much attention is given to the size of cuts over the next meeting or two,” the “larger message” is that there is “considerable” scope to lower interest rates over the next year or so.
Looking to the day ahead, economic data scheduled for release include Euro Area industrial production; the ZEW Index of Economic Sentiment in Germany; and the Empire Manufacturing Index and the New York Fed survey of inflation expectations in the US.