Main currency pairs little changed

It was a very quiet start to the week in FX markets yesterday with the main currency pairs confined to extremely tight ranges. The euro is trading at around $1.0890 against the dollar and at 84.25p against sterling this morning, while the pound is trading at about $1.2925 against the US currency. The economic data calendar is light again today, so it could be another subdued session ahead.

It was also quiet in government bond markets yesterday, with yields generally flat to marginally higher on the day. There was a bit more action though in equity markets, which staged a partial rebound following last week’s sharp fall. European stocks advanced by 1.5% (having shed more than 4% last week), while the Nasdaq led the recovery in US indices, gaining around 1.6%.

ECB member Kazimir says the central bank is “on track to return to our (inflation) target, but we are clearly not there yet,” noting that “due to various factors, both domestic and global, there is still a non-negligible risk of inflationary pressures re-emerging.” He also says market expectations for around two more interest rate cuts over the rest of this year are not “entirely misplaced” but should not be taken as “a given” either. The market currently sees about an 80% chance of a 25bps cut at the ECB’s next meeting in September.

As mentioned, there is a light economic data calendar again today, with consumer confidence in the Euro area and existing home sales in the US, before some key releases over the remainder of the week, starting tomorrow with flash PMIs for July in the main economies. Meanwhile, ECB Chief Economist Philip Lane speaks on the challenges for monetary policy later this morning.