Main currency pairs little changed

The euro and sterling were mainly in consolidation mode yesterday, having gained ground against the dollar on Wednesday following the latest inflation data in the US. They are both marginally lower trading at around $1.0860 and $1.2660 respectively this morning, while the euro-sterling cross continues to trade just below 86p.

Government bond yields edged a little higher yesterday, following a sizeable decline on the back on the US inflation numbers, while US and European equity markets both ended slightly lower on the day.

A number of ECB members yesterday again strongly indicated the central bank will cut interest rates at next month’s meeting – indeed the much greater surprise at this stage would be if it didn’t – but they remain circumspect about the pace of rates cuts beyond June. The market for its part is pricing in a further two quarter-point reductions by the end of this year.

Fed officials, meanwhile, continue to insist there is no hurry to cut interest rates, noting that the current restrictive stance of monetary policy, if maintained, will help return inflation to its 2% target.

Yesterday’s economic data in the US were generally softer than expected. Manufacturing output fell in April, and the increase in March was revised down quite a bit, while housing starts rose by less than forecast last month after a larger decline than initially estimated the previous month.

It is a very quiet end to the week economic data-wise. There is a final reading for Euro area CPI inflation in April – the flash reading showed the annual headline rate remained unchanged at 2.4% last month and the core rate nudged down to 2.7% from 2.9% in March.