Fairly quiet in FX markets
It was fairly quiet in FX markets yesterday with most of the main currency pairs trading in narrow ranges. Donald Trump’s State of the Union address overnight has had little impact, which perhaps should be taken as good news. The euro and sterling are marginally firmer against the dollar this morning, with the single currency trading just shy of $1.18 and the pound hovering north of $1.35. EURGBP is trading at about £0.8730, having briefly dipped to a low of just under £0.8710 in yesterday’s session.
Government bond yields were little changed. Curve flattening was again in evidence with short-dated yields generally a touch higher and long-dated yields flat to marginally lower. In equity markets, US stocks reversed most of Monday’s losses, gaining around 1%, while European indices ended broadly flat on the day.
Bank of England Governor Andrew Bailey reiterates that “with inflation returning to target, there should be scope for some further easing in monetary policy”. However he cautions that “this does not mean that I expect to cut (rates) at any particular meeting…it means that I will go into the coming meetings asking whether a cut is justified.” The market is pricing in a circa 75% chance of a 25bps reduction in rates at next month’s meeting (March 19th).
Fed’s Goolsbee says he remains “optimistic that there can be more rate cuts this year…though that hinges on seeing actual progress on inflation that shows we are on a path back to the 2% target.” The latest PCE data, published last Friday, showed headline inflation still well above target in December at just under 3%.
Consumer confidence in the US ticked up in February, according to the Conference Board’s measure, having fallen quite sharply in January. It remains well below year-earlier levels though, with ‘affordability’ concerns remaining “at the top of consumers’ minds.”
It’s very light in terms of economic data today with a final reading of Euro area CPI inflation in January the only release of note – the flash reading showed headline inflation fell to 1.7% last month from 2.0% in December. A few Fed members are scheduled to speak during the course of the day.