Euro rebounds post ECB

Somewhat counter-intuitively perhaps, the euro has strengthened against the dollar post yesterday’s ECB meeting, even as the central bank delivered a significant stimulus package – announcing a cut in interest rates and a recommencement of bond purchases – though of course the single currency had weakened in the weeks leading up to the meeting. Having only very briefly dipped below $1.10 yesterday afternoon, the euro has since rallied to trade at almost $1.11 this morning (which is still below its level, say, in mid-August). Meanwhile, sterling is also strengthening against the dollar, touching $1.24 this morning (its best level since late July) but leaving it little enough changed against the euro at 89.5p

Similarly, bond yields, which had also fallen in the weeks running up to the ECB meeting albeit nudging higher very recently, rose yesterday with German 10-year yields up about 7bps to around -0.50% (though again this is below the levels that prevailed in early August)

The ECB cut the deposit rate by 10bps to -0.50% but kept the so-called refi rate at 0.0%, and said its key interest rates would remain at present or lower levels  until inflation has ‘robustly’ converged to a level ‘sufficiently close to, but below, 2%’ (note that the ECB’s updated forecasts see inflation running shy of this target through 2021). It also announced that it would restart its bond purchases programme from November 1st at a pace of 20bn euro a month, and said it expected the purchases to run ‘for as long as necessary’ and ‘to end shortly before it starts raising…interest rates’

The annual rate of headline CPI inflation in the US dipped to 1.7% in August but the core rate (which excludes food and energy prices) picked up to 2.4%, its highest level since around them middle of 2018

Data due today include retail sales and consumer confidence in the US