Euro edges higher

The euro has edged higher against the dollar, despite yesterday’s stronger than expected GDP data in the US, trading at around $1.0850 this morning, and is also firmer against sterling at 84.4p, with the pound slipping a little further against the dollar to about $1.2860. Meanwhile, US inflation data due later will be the focus for markets today.

The better than expected GDP data didn’t prevent a further fall in US stocks, with the Nasdaq and S&P 500 off another 0.9% and 0.5% respectively yesterday, while European equities shed around 1%. US bond yields did reverse course following the data though, erasing sizeable declines to close slightly higher on the day.

Growth in the US economy picked up in the second quarter helped by a reacceleration in consumer spending, with GDP increasing by 0.7% q-o-q having risen by 0.3% in the opening quarter of the year. Nonetheless, there has been a step down in the pace of growth in 2024 relative to the second half of 2023, when GDP rose by an average of 1% a quarter over the final two quarters of the year.

ECB member Nagel says wage growth in the Euro area is still “very robust” and the return of inflation to its 2% target will be “bumpy”, but adds that the central bank should be able to lower interest rates further over the coming months.

PCE inflation data due in the US today are expected to show headline and core prices rose by 0.1% and 0.2% month-on-month respectively in June, which would see the year-on-year rates of inflation fall to 2.4% and 2.5% respectively from 2.6% for both in May. An outturn along these lines should keep intact market expectations for a Fed rate cut in September.

Other data scheduled for today include consumer spending and consumer confidence in the US, while the ECB publishes its latest survey of consumer inflation expectations.