Euro marginally firmer

The euro is marginally firmer against the dollar and sterling ahead of Euro area inflation data for March this morning, with the single currency trading at around $1.0770 and 85.65p respectively. The pound has also gained a little ground against the dollar, trading at about $1.2570.

Solid economic data contributed to a rise in sovereign bond yields yesterday. This was led by the UK with 10-year yields increasing by around 15bps, while equivalent German and US yields ended around 10bps and 5bps higher respectively. Rising yields weighed on equity markets, as European and US stocks both shed almost 1% on the day. Meanwhile, oil prices continue to move up with Brent crude now at a circa 4-month high of over $89 per barrel.

In the UK, the latest batch of mortgage data from the Bank of England point to an ongoing recovery in the housing market. The number of mortgage approvals for house purchase rose again in February to the highest level since September 2022 (helped by declining mortgage interest rates), while net mortgage lending posted the largest increase since January last year. House prices did nudge down a touch in March though, according to the Nationwide measure, but the 0.2% decline followed solid gains in both January and February and the annual increase in prices picked up to 1.6% (from 1.2% in February).

Fed member Mester says “some further monthly (inflation) readings will give us a better sense of whether the disinflation process is stalling out or whether the start-of-the-year readings reflect a temporary detour on the downward path back to price stability.” She adds that “at this point…the bigger risk would be to begin reducing (interest rates) too early,” but she still believes it will be “appropriate” to lower them later this year.

The annual rate of HICP inflation in Ireland fell for a third consecutive month in March according to the flash reading, and at 1.7% (down from 2.3% in February) was running at its lowest level in almost three years.

Euro area inflation data for March due this morning are expected to show the annual headline and core rates nudging down to 2.5% and 3% respectively (from 2.6% and 3.1% in February), which would keep the ECB on track to lower interest rates in June (as now seems likely). Other data scheduled for today included Euro area unemployment for February and the March ADP Employment and ISM Services reports in the US.