EURUSD lower again
The euro lost more ground against the dollar yesterday, falling to lows of just under $1.1550. It is only a touch firmer this morning at about $1.1570, which leaves it down around 2 cents from last Friday’s close. The currency’s slide, which was triggered by the surprise resignation of the French PM on Monday, has continued even as French bonds have recovered over the past few days, with 10-year yields now lower than at the end of last week. While the path of least resistance in the near-term may still be down, EURUSD should find some support in and around the $1.15 level. Sterling, meanwhile, has fared no better against the dollar this week. It fell to a low for the week of about $1.3280 yesterday and is hovering around $1.33 this morning, down almost 2 cents from last Friday’s close. This leaves EURGBP trading just north of £0.87, little changed on the week.
US and German government bond yields have largely traded sideways this week, with the former marginally higher and the latter a touch lower, while UK bonds have underperformed slightly, with yields increasing by 4-5bps. In equity markets, US and European stocks lost ground yesterday, both shedding a little less than half a percent. European indices have opened in positive territory this morning, with the Israel-Gaza ceasefire possibly helping sentiment. The latter is also contributing to a modest fall in oil prices with Brent dipping below $65 a barrel.
The minutes of the ECB’s September monetary policy meeting, at which interest rates were again left unchanged, note that, “while a further rate cut in the coming months would better protect the inflation target both under the baseline and across a range of adverse scenarios, the materialisation of upside risks would instead warrant maintaining the current level of the policy rate.” In the meantime, the ECB will “continue monitoring the evolving risks to the inflation outlook and the economy.” The market continues to see the central bank on hold through year-end and into 2026.
Fed Governor Barr says there “remains considerable uncertainty about the future course of the economy,” noting that “it is possible that recent low payroll growth is a harbinger of worse to come, or that payroll growth eventually strengthens,” consistent with still solid economic growth. He also says it is “possible tariffs will have only a modest impact on the course of prices” and that inflation will return toward the 2% target next year, but “it is also possible that both inflation and inflation expectations escalate.” Given this uncertainty, he believes “common sense “would indicate that the Fed should move “cautiously” on interest rates.
It is a quiet end to the week in terms of economic data with the University of Michigan’s consumer confidence / inflation expectations survey for October the only release of note. There is a smattering of Fed/ECB members due to speak during the course of the day.