Euro under pressure post ECB

The euro is under pressure after the ECB left interest rates unchanged yesterday but indicated it is likely to cut them at its next meeting in June. The single currency has weakened to a new 2024 to date low of $1.0680 against the dollar and has slipped to around 85.3p against sterling. The latter has also lost further ground to the dollar to trade close to $1.25 this morning.

In government bond markets, US 10-yields rose further yesterday, reaching almost 4.6%, after increasing sharply on Wednesday following firmer inflation readings, while equivalent German and UK yields also closed higher on the day (there is some relief this morning though with yields generally edging down a little).

The ECB left interest unchanged at its latest meeting, noting that inflation has continued to fall and wage growth is gradually moderating. It added that if its updated assessment of the inflation outlook  – which it will next make in June – were to “further increase its confidence that inflation is converging to the target”, it would be “appropriate to reduce the current level of monetary policy restriction” i.e. lower interest rates.

ECB member Stournaras says “now is the time” for the ECB to diverge from the Fed, noting that “the situations in the Euro area and the US are completely different (with) demand much stronger” in the US.

Data released earlier this morning show GDP in the UK increased by 0.1% in February, while January’s outturn was stronger than initially estimated at 0.3%. Over the three months to February GDP was up 0.2% on the three months to November 2023, leaving the economy on track to post positive growth in the first quarter of this year having been in mild recession over the second half of last year.

Economic data is thin enough on the ground today with the University of Michigan consumer confidence/inflation expectations survey for April scheduled in the US.