Euro to remain under pressure

The euro is off yesterday’s lows against the dollar and sterling, trading at around $1.0510 and £0.8290 respectively this morning. It is set to remain under pressure though given the fraught political situation in France, where the relatively new minority government faces a vote of no confidence in parliament tomorrow (one it seems likely to lose). The pound tracked the euro some of the way lower against the dollar yesterday and is trading at $1.2680 at the start of play today.

US bond yields nudged higher yesterday, reversing just a small portion of last week’s sharp decline. German bonds benefited from the situation in France with 10-year yields falling by around 5bps, while French bonds under-performed as equivalent yields rose 2-3bps on the day. Meanwhile, European stocks managed to chalk up some more gains, of almost 1%, while the S&P 500 in the US added around 0.3%.

Fed members Waller and Williams said US interest rates are likely to fall further over time as the central bank navigates its way towards a more neutral policy setting. Waller also said he is ‘leaning’ towards a further cut at this month’s meeting in a couple of weeks’ time (17th/18th), but noted that there are some important economic data releases due before then (including the November employment report this Friday).

The ISM manufacturing index in the US ticked up in November but remained below the key 50 level for an eight consecutive month, pointing to an on-going albeit moderate contraction in activity in this sector of the economy.

Looking to the day ahead, economic data is thin on the ground with job openings in the US the only release of any note, while a number of Fed and ECB members are scheduled to speak over the course of the day.