Main currency pairs in tight ranges
As suspected might be case, there was limited price action in FX markets yesterday with the main currency pairs continuing to trade in very tight ranges ahead of tomorrow’s jobs report in the US. Inflation data in the UK published a short while ago were broadly in line with expectations and so have had little impact on the pound, which is hovering just north of £0.88 against the euro and trading at around $1.3140 versus the dollar. Yesterday’s trading range for EURUSD was about $1.1575 to $1.1625 and it’s near the bottom of this range this morning.
There continues to be plenty of price action in equity markets which remain very much on the back foot. European stocks fell for a fourth straight session, shedding almost 2%, while the main US indices ended off their worst levels of the day but still chalked up losses of between 0.8% and 1.2%. All of this ahead of Nvidia’s latest results, which will be released after the New York close today.
US government bond yields ended modestly lower amid the weakness in equity markets and a slight firming of market expectations for a Fed rate cut next month (still seen as a bit less than 50/50 though), falling by around 3-4bps across the curve. UK 10-year yields backed up a little bit more and at over 4.50% are now around 15bps off last week’s 2025 to date lows, while equivalent German yields were broadly flat on the day.
This morning’s CPI data in the UK showed the headline rate of inflation fell to 3.6% in October from 3.8% in September, with a decline in energy price inflation and lower core inflation offsetting a renewed rise in food price inflation. Core inflation fell for a third month running to 3.4%, with services inflation declining to 4.5% (its lowest level since December last year) and goods inflation unchanged at 1.5%. This latest data should copper-fasten a rate cut at next month’s Bank of England monetary policy meeting.
Look to the day ahead, the Fed publishes the minutes of its October policy meeting, which are certain to highlight the sharply differing views among members about whether interest rates should be cut again at next month’s meeting. Economic data-wise, a final reading for October inflation is due in the Euro area – the flash estimate showed headline inflation dipped to 2.1% last month from 2.2% in September – and the trade balance for August is scheduled in the US.