Euro firmer this morning

Yesterday was more or less a re-run of Monday as far as the euro and sterling were concerned. They both strengthened for a time against the dollar, reaching their best levels of the day (and of the week so far) of $1.0545 and almost $1.2620 respectively, but failed to sustain these gains. They are creeping higher again this morning though helped by news of the Israel-Lebanon ceasefire, with comments from ECB member Schnabel also supporting the single currency, trading at around $1.0530 and $1.2610 ahead of US inflation data due later today. EURGBP is a touch firmer, trading at about £0.8350.

Government 10-year bond yields have nudged a little lower this morning, by a few basis points, on the back of the Israel-Lebanon ceasefire. News of the latter helped US equity markets to a positive finish yesterday, with the S&P 500 closing at at fresh all-time high (now up 4% since the the US election). European stocks had earlier ended in the red, shedding almost 1%.

In comments this morning, ECB member Schnabel said, “given the inflation outlook, I think we can gradually move toward (a) neutral” setting for interest rates, but added that she “would warn against moving too far, that is into accommodative territory.”

The minutes of the Fed’s October monetary policy meeting note that “disinflationary progress had been seen across a broad range of core goods and (non-housing) services prices.” These prices were “now increasing at rates close to those seen during earlier periods of price stability”, which “corroborated reports received from…business contacts that firms were more reluctant to increase prices as consumers appeared to be more price sensitive.” The minutes also note that the Fed “remained confident that inflation was moving sustainably toward 2%”, but that it was appropriate to continue lowering interest rates at a gradual pace.

PCE inflation data due in the US later today are expected to show the annual headline and core rates both nudged up in October to 2.3% and 2.8% respectively (from 2.1% and 2.7% in September), according to the consensus forecast, on the back of monthly increases of 0.2% and 0.3%. Other US data due today include weekly jobless claims, consumer spending for October, and a second estimate of third-quarter GDP growth.