Euro softer ahead of inflation, GDP data

The euro is marginally lower ahead of Euro area inflation (April) and GDP (Q1) data due later this morning, trading at about $1.07 against the dollar and at 85.3p against sterling. The pound is also a touch weaker against the US currency trading at about $1.2530. The yen, meanwhile, remains higher against the dollar just below Y157, after bouncing strongly off its lows of over Y160 amid speculation the Japanese authorities intervened to support the currency.

Government bond yields have retreated further from their highs of late last week, with US and German 10-year yields falling by around 5bps yesterday and equivalent UK yields by just a little less. In equity markets, US indices ended with modest gains, after a strong performance on Friday, but European stocks closed marginally lower on the day.

ECB Vice-President de Guindos indicates that the central bank is likely to cut interest rates in June but reiterates that “we are not pre-committing to a particular rate path”, while also warning that “the outlook for inflation is surrounded by substantial risks (with) the geopolitical situation, especially in the Middle East, posing a particular upside risk”.

Ahead of this morning’s April inflation data for the Euro area, the available national data shows the annual rate of headline HICP inflation in Germany and Spain nudged up in April according to the “flash” readings, but was unchanged in France and nudged down in Ireland (to 1.6%, its lowest since June 2021).

Headline inflation in the Euro area is expected to have remained at 2.4% last month according to the consensus forecast, but the core rate is seen falling for an eight consecutive month to 2.6% (from 2.9% in March). Separately, the Euro area economy is forecast to have returned to growth in the first quarter of this year, with GDP expected to have increased by 0.1% (q-o-q) having contracted by 0.1% in the final quarter of last year. Overall, today’s data should reinforce market expectations that the ECB will lower interest rates in June.