Euro on the back foot

The euro was under pressure yesterday as the market chose to take its cue from some dovish ECB commentary – a full quarter-point cut in interest rates is now priced for April – and is trading at around $1.0830 and 85.25p against the dollar and sterling respectively this morning. The pound is largely unchanged against the dollar at about $1.27.

The dovish ECB commentary also contributed to a decline in government bond yields. They fell by around 5-10bps yesterday and are edging down further this morning. In equity markets, European stocks ended largely flat on the day, following Friday’s solid gains, while the S&P 500 added almost 1% and at a new record high to boot.

Ahead of Q4 GDP data for the Euro area later this morning, the French economy stagnated again in the final quarter of 2023, with GDP remaining flat for a second quarter in a row, according to figures released earlier. Spain’s economy fared a good bit better in Q4 in contrast, with GDP growth picking up to 0.6% q-o-q from 0.4% in Q3 according to the latest release.

Today’s Euro area GDP numbers are expected to show the economy contracted for a second consecutive quarter in Q4, with the consensus forecasting a fall in output of 0.1% from Q3, which would probably reinforce market expectations for a rate cut in April.

Other economic data due include mortgage approvals and mortgage lending in the UK as well as consumer confidence and job openings in the US. The job openings data are closely followed by the Fed, as it seeks evidence that labour demand is continuing to moderate and moving in better balance with labour supply in the economy