Euro slightly lower

The euro has slipped a little against both the dollar and sterling to trade at around $1.091 and 87.1p this morning, while the pound is mostly holding its own against the US currency trading at around $1.2530 amid continuing “hawkish” Bank of England commentary.

Government bond yields edged lower yesterday, led by Germany with 10-year yields down around 5bps at the close, while in equity markets, both European and US stocks ended slightly lower on the day.

The minutes of the Fed’s end-October meeting note that “further tightening of monetary policy would be appropriate if incoming information indicated that progress toward the…inflation objective was insufficient.” However data published since the meeting will have provided some reassurance on that front, notably the renewed decline in inflation to a circa 2.5 year low of 3.2% in October.

Bank of England Governor Andrew Bailey says he thinks “the market is putting too much weight on…the fact that we’ve seen inflation come down quite rapidly,” adding that “we are concerned about the persistence of inflation on the rest of the journey (to the 2% target).” And indeed his colleague, Catherine Mann, says she believes “the prospects for more persistent inflation imply a need for tighter monetary policy.”

The attention will be on UK fiscal policy today as the Chancellor of the Exchequer presents the Autumn Statement, with lower than expected borrowing in the fiscal year to date providing him with some wriggle room to cut taxes. There’s plenty of speculation about lowering personal taxes, but it seems the Chancellor will also be focusing on measures to boost business investment and productivity and ultimately raise economic growth.

Economic data due today include consumer confidence in the Euro area and jobless claims, capital goods orders and the University of Michigan consumer confidence index (final reading for November) in the US ahead of Thanksgiving Day tomorrow.