Euro steady

The euro is little changed against the dollar and sterling again this morning, trading just north of $1.07 and just below 87p respectively, while the pound is still hovering in and around $1.2350 against the US currency.

There was a notable rise in UK government bond yields last week, with 10-year yields increasing by more than 30bps to almost 4.35%. Equivalent US yields rose by the best part of 15bps to 3.80%, while German 10-year yields were about 10bps higher at just over 2.50%.

The Biden administration and Republican leaders have agreed a deal ‘in principle’ that would raise the US debt ceiling, but it must still be passed in Congress. Market reaction to the news has been muted, though European equity markets are firmer at the open this morning.

The annual rate of PCE inflation in the US (the Fed’s target measure of inflation) came in an 4.4% in April, up from 4.2% in March and also a little higher than expected, while the core rate nudged up to 4.7% (from 4.6%)

ECB member Makhlouf says “given our current outlook for inflation, we are likely to be close to ‘the top of the ladder” in terms of raising interest rates, adding that “slowing the pace (of interest) rate steps is appropriate.”

Economic data due this week includes the key US employment report on Friday – the consensus expects the economy to have added about 19ok jobs in May, with the unemployment rate seen nudging up to 3.5% (from 3.4% in April).

 

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