Euro a touch softer

The euro is under a little pressure following the release of softer than expected inflation data in France earlier this morning, which comes ahead of the latest inflation reading for the Euro area later today, dipping to around $1.0950 against the dollar and to 86.2p against sterling. The latter remains close to its high for the week against the US currency, trading at $1.27.

Sovereign bond yields headed further south yesterday as market expectations for interest rate cuts next year continued to firm, with lower than expected inflation in Germany adding to the move down. In equity markets, European stocks ended marginally higher but US indices gave up initial gains to close broadly flat on the day.

The annual rate of inflation in Germany fell to 2.3% in November from 3% in October, its lowest level in more than two years, while this morning’s data in France show a fall to 3.8% from 4.5%. With Spain and Ireland also reporting declines this month, inflation for the Euro area as a whole will have decelerated in November also, the only question is by how much.

The US economy expanded by 1.3% in the third quarter of the year, slightly stronger than initially estimated.  However the Fed’s latest Beige Book indicates the pace of growth has stepped down in the period since – it reports a slowdown in economic activity amid “mixed” retail sales, with the demand for labour easing and wage pressures moderating.

Inflation data are also due in the US today, with the consensus expecting both the headline and core rates of PCE inflation – the Fed’s target measure – to have fallen further in October. Other data scheduled for today include consumer spending and jobless claims in the US and unemployment in the Euro area.