Main currency pairs little changed

The euro drifted lower against the dollar for a time during the course of yesterday’s session before regaining ground on the back of softer than expected US labour market data. It is currently trading at around $1.0870, little changed from where it was trading yesterday morning, and towards the top of the $1.05 to $1.10 range that has prevailed for most of the time since the beginning of 2023 even as the ECB prepares to lower interest rates ahead of the Fed. Normal service seems to have been resumed in EURGBP, which continues to hover just north of £0.85 after a couple of short-lived forays below this level recently. The pound is not much changed against the dollar, trading at around $1.2770.

In government bond markets, US 10-year yields headed south yesterday, helped along by the labour market data, closing around 5bps lower at 4.33%, while equivalent German and UK yields also declined by about 5bps to 2.53% and 4.18% respectively. In equity markets, European stocks shed 1%, more than reversing Monday’s gains, while the S&P 500 closed broadly flat for a second session running.

Oil prices continue to fall after OPEC+ announced at the weekend that it would gradually unwind (voluntary) supply cuts from the fourth quarter of this year. Brent crude is down to around $77.5 per barrel, close to its lows for the year of just under $76 p/b in early January.

Labour demand in the US continues to soften, as evidenced by a further decline in the number of job openings in April. They fell by 3.5% from March, and are now down by around 33% from the (extremely elevated) peak levels that prevailed in early 2022. The Fed for its part will be reassured by further signs that the labour market is moving into better balance.

Economic data due today include services PMIs in the main economies (final readings for May); producer prices in the Euro area; and the ISM services index and ADP employment report in the US.

Also today, the Bank of Canada holds it latest monetary policy meeting with the market seeing about an 85% chance of a quarter point cut in interest rates from the current 5%.