Fed commentary weighs on dollar

Some relatively dovish Fed commentary weighed on the dollar yesterday and this is continuing this morning. The euro and sterling are trading at around $1.0760 and $1.2690 against the US currency respectively, both firmer than this time yesterday morning, while EURGBP is marginally lower at around £0.8470.

US government bond yields edged down on the back of the Fed commentary with 10-year yields about 4bps lower on the day. UK yields also nudged down, while German yields were flat. In equity markets, US stocks had a positive session with the S&P 500 adding around 0.6% and closing at a new record high, but European indices finished their session in the red.

Fed Chair Powell says recent data suggest the US economy is “back on a disinflationary path“, albeit the central bank still wants “to be more confident that inflation is heading sustainably down toward 2% target before we start loosening (monetary) policy.” Meanwhile, his colleague Goolsbee says inflation is “on a path to 2%” and the Fed should prepare to lower interest rates.

Inflation data in the Euro area yesterday were a little firmer than expected. The annual rate of headline inflation dipped to 2.5% in June – in line with the consensus forecast – from 2.6% in May, but core inflation was unchanged at 2.9% (versus 2.8% expected), with the decline in core goods inflation stalling last month (at 0.7%) and core services inflation also unchanged (at just over 4%).

There’s a heavy enough schedule of US economic data today, including weekly jobless claims, ADP employment report, ISM services index and the PMI services index (final reading for June), while the Fed publishes the minutes of its recent monetary policy meeting.  Final PMI services readings for June are also due in the Euro area and the UK, while we also get Euro area producer prices.