Euro takes back a little ground
The ECB decision to cut interest rates on Thursday saw the euro lose some ground immediately post the meeting, down to around $1.0820 to the dollar but the single currency rebounded somewhat on Friday and is back to around $1.0850 currently, still some way off the $1.09 level it traded at at the beginning of last week. It also weakened against sterling on Thursday, to about £0.83, and has taken back a little ground to around £0.8330 this morning. Sterling has gained a touch on the dollar toward the end of week, back up to over $1.30.
In government bond markets, US 10-year yields rose by almost 10bps on Thursday countering a fall in the yield earlier in the week, but with little movement on Friday the yield remains at close to 4.1%. Equivalent German and UK yields edged down on Friday and are trading close to 2.2% and 4.05% respectively. On the back of the ECB decision to cut rates, shorter dated German yields fell with 2-year yields down 15bps on the week to 2.1%.
With another 25bps cut in ECB interest rates fully priced in for the December meeting, some ECB officials have been out to back up the view that rates will need to continue to be reduced. Bank of France Governor Villeroy said that the risk of ‘missing the inflation target going down now exists as much as that of exceeding it’ and the ECB ‘should continue to reduce the restrictiveness of monetary policy as appropriate’ and he said there will ‘probably be other rate cuts’.
In the US, Atlanta Fed President Bostic said that he was of the view that the ‘outsized’ first fed funds rate cut was appropriate and that he was very comfortable with that as rates had been keep high for a long time. However he said that he favours patience in cutting rates further. He said he believed the neutral interest rate for the Fed was somewhere between 3.0% and 3.5% but that he was ‘not in a rush’ to get there.
In the UK, Rightmove said that house prices rose by 0.3% in October, a smaller increase than expected. The annual increase came in at 1.0%. The report said that sales and demand were well up on this time last year and that the number of homes for sale this month is 12% higher than a year ago. However, there was an element of hesitancy in the market with some buyers expecting interest rates to fall and also that some are waiting for clarity on Chancellor Reeves’s first budget this month and any impact it may have on the housing market.
On the data front this week, we get the flash PMI readings for October, durable good orders in the US and EU consumer confidence. There is a full slate of speakers from all the major central banks, including ECB President Lagarde, Chief Economist Lane and BoE Governor Bailey.