Hectic week ahead!

The dollar lost some ground against the euro and sterling on Friday following softer than expected US economic data, and remains lower this morning at around $1.0860 and $1.2680 respectively, with the euro-sterling cross at 85.6p. In truth, though, the main currency pairs traded in narrow ranges last week, but that could change this week with plenty for the market to digest, including Fed Chair Powell’s testimony on the US economy and monetary policy to Congress on Wednesday; Budget 2024 in the UK on Wednesday also; the latest ECB meeting on Thursday; and the employment (payrolls) report in the US on Friday.

US government bond yields fell on Friday post the economic data with both 2-and 10-year yields ending the best part of 10bps lower on the day, while German and UK yields were largely unchanged. In equity markets, the S&P 500 in the US closed out Friday at a record high, on the back of gains of almost 1%, while European stocks advanced by around half a percent.

The real economy data in the US last week were generally softer than expected, including Friday’s ISM index of manufacturing activity which fell in February having advanced over the previous two months. Accordingly, the Atlanta Fed’s estimate of the run-rate for GDP growth in Q1, based on the data to hand, has fallen to around 2% (annualised rate) from over 3% a week ago.

The flash estimate of Euro area headline inflation in February was a little higher than the consensus forecast at 2.6%, albeit down from 2.8% in January. The core rate was also a touch firmer than expected at 3.1%, down from 3.3%, with services inflation still sticky(ish) at 3.9%. The data may persuade the ECB to remain cautious on the timing of any cut in interest rates at this week’s meeting.

It is quiet on the economic data front today. As mentioned, US payrolls are due on Friday, while before that we get services PMIs for the main economies tomorrow, as well as the ISM services index and job openings in the US tomorrow and Wednesday respectively.