Euro holding up

The sell-off in French bonds intensified during the course of yesterday’s session, with yields rising quite sharply and spreads over Germany widening out again after narrowing slightly last week. Given this backdrop, the euro held in reasonably well on the FX markets, managing to remain above the $1.12 level against the dollar and north of £0.84 against sterling. Labour market data released in the UK a short while ago were on the firmer side of the consensus forecast, copper-fastening market expectations for a Bank of England rate hike next month and giving the pound a modest boost. All told, EURUSD and EURGBP are trading at around $1.1235 and £0.8415 this morning, while sterling has nudged up to around $1.3350 against the US currency.

French government 10-year bond yields rose by almost 15bps to close at 4.94%, still below the highs of just shy of 5% reached in early October, while the spread over equivalent German bonds widened out by around 12bps. There is some small respite this morning though, with 10-year yields down around 3-4bps at the start of play. In equity markets. European stocks more than reversed Friday’s gains, shedding almost 1%, while US stocks managed to claw back a small portion of the losses chalked up at the end of last week with the Nasdaq up more than 1% and the S&P 500 closing almost 0.5% higher on the day.

According to this morning’s labour market report in the UK, employment rose and the unemployment rate fell over the three months to August, while regular earnings growth was largely steady over the same period. The unemployment rate nudged down to 4.7% from 4.9% over the three months to July, and has now fallen by around half a percentage point from its recent peak of just over 5% around the turn of this year, perhaps reflecting the pick-up in economic growth over the course of 2026 to date. In terms of wage growth, regular weekly earnings rose by 3.7% year-on-year over the three months to August, up slightly from 3.6% in the previous three-month period but down from 4.7% in June-August 2025. This morning’s data have copper-fastened market expectations for a rate hike from the Bank of England next month, although there’s still CPI inflation data for September to come tomorrow.

 For the day ahead, Euro area economic data due include the ZEW investor sentiment index for October and construction output for August, while housing starts (September) and the ADP weekly employment report are scheduled in the US. There are a few central bank members due on the wires over the course of the day, including ECB Chief Economist Philip Lane.