Euro hits new lows before recovering a touch
French government bonds were under pressure, as was the euro, at the start of the week’s trading. The yield on 10-year bonds ended higher on the day, in contrast to flat to lower yields in other Euro area markets, with the spread over benchmark German bonds widening out again having narrowed a touch last week. The euro lost ground against the dollar and sterling, falling to new 2026 lows of around $1.1150 and £0.8440 respectively in the process, though it is marginally firmer against both this morning at about $1.1195 and £0.8455. The pound is also slightly firmer against the dollar, trading at around $1.3240.
The yield on French 10-year bond yields closed around 5bps higher, though at around 4.90% it remained below its high of just under 5% at the start of October, while German yields ended broadly flat. UK 10-year yields were also largely unchanged on the day, while the US bond market was closed for Columbus Day. Yields generally are lower at the start of play today amid weakness in Asian equity markets overnight.
The IMF has published its latest World Economic Outlook (WEO) overnight. It notes that “global economic activity has proven resilient once again” in the face of the energy price shock triggered by the war in Iran. It expects global growth to slow to 3.1% in 2026 (from 3.5% in 2025) but to rebound to 3.4% in 2027, while global headline inflation is projected to rise to 4.7% this year (from 4.1% last year) before easing to 4.1% in 2027. In the context of the recent rise in bond yields, it notes that “borrowing costs have risen sharply in major advanced economies, owing to both supply- and demand-driven price pressures, along with fiscal and credit risks,” and warns that “the interaction of higher financing costs with elevated debt levels exposes a key margin of vulnerability.”
Fed member Hammack says “inflation pressures (in the US economy) are relatively broad-based,” coming from both the supply- and demand-side. She adds that a “restrictive monetary policy stance is appropriate to ensure a timely return” to the 2% inflation target, and believes “it’s preferable to make smaller adjustments (to interest rates), and to do so relatively quickly, rather than to wait and risk needing a larger course correction”. The market is currently pricing in another 25bps increase in interest rates by the end of this year, following last month’s quarter-point hike.
As mentioned, it’s very quiet in terms of economic data today, with the small business optimism index (September) and existing home sales (September) in the US the only releases of note. There are a number of Fed and ECB members scheduled to speak over the course of the day.