Euro remains on the defensive
It was quiet in FX markets yesterday with the main currency pairs confined to fairly narrow ranges. The euro remains on the defensive against the dollar though, trading down to a low of just under $1.1580 yesterday and hovering around the $1.16 level this morning. Sterling fell to a low of about $1.33 against the US currency following yesterday morning’s softer than expected UK inflation data, but has partially recovered to around $1.3350 currently. The pound has also regained some ground against the euro, trading a touch below £0.87 this morning.
UK bonds outperformed notably yesterday on the back of the inflation data, which saw the market ramp up Bank of England rate cut expectations, with 2- and 10-year yields falling by around 9bps and 7bps respectively. In contrast, German and US yields were broadly flat on the day. Equity markets had a poor session – sentiment not helped by reports that the Trump administration is considering restrictions on software exports to China – though they finished off their worst levels, with European stocks shedding around 0.8% and the main US indices off between 0.5% and 0.9%. Meanwhile, oil prices have popped higher as the US and EU step up sanctions on Russia; Brent crude is up to around $64.5 a barrel, still at the lower end of the range ($60-$80) that has prevailed in 2025 to date.
ECB Vice-President de Guindos says “the path forward for (Euro area) inflation looks positive” – the Bank’s latest forecasts envisage underlying inflation hovering around 2% over the next couple of years – and hence the “the current ECB interest rate level is adequate”. The market expects rates to remain on hold for the remainder of this year but still sees some chance of one more cut during the course of 2026.
It is quiet on the economic data front today with Euro area consumer confidence and US existing home sales the only releases of note. There is a heavier schedule of today tomorrow – thankfully – including flash PMIs for October in the main economies (US, Euro area, UK); September retail sales in the UK; and the September CPI inflation report in the US.