Main currency pairs little changed

Markets had a positive session, notwithstanding renewed hostilities between the US and Iran, with bond yields lower and stocks advancing, though the main currency pairs remained in fairly narrow ranges.  EURUSD and GBPUSD are trading at around $1.1440 and $1.3425 respectively this morning, leaving them little changed really from yesterday’s morning’s levels. EURGBP is also largely unchanged, trading at about £0.8520. It’s a very quiet end to the week in terms of economic data releases with little or nothing of note scheduled.

German and UK government bond yields ending lower, reversing some of Wednesday’s sharp increase, with 2-year yields falling by 7-9bps as ECB and BoE rate hike expectations eased somewhat. US yields also edged lower, falling by 3-4bps on the day. In equity markets, European stocks rebounded from Wednesday’s sell-off, gaining around 1%, while the S&P 500 closed almost 1% higher.

The minutes of the ECB’s June meeting – at which the deposit rate was raised by 25bps to 2.25% – note that, “given the continuing high uncertainty, it was important to refrain from giving any guidance regarding the future interest rate path…communication should remain neutral, neither suggesting that the current decision was the first of a sequence of hikes to come nor that it was a one-off move.” Regarding current market expectations, another 25bps rate increase by October is almost fully priced, with about a 50% chance of a further quarter-point hike by next March.

Fed member Williams is concerned that strong AI-related investment in the US could boost inflation. He says that “if this creates a sustained impulse to aggregate demand relative to supply”, resulting in more persistent inflationary pressures, “then monetary policy would need to respond to that” (via an increase in interest rates).

As mentioned, it is an extremely quiet day ahead in terms of economic data. There are a few ECB members due on the wires over the course of the day.