Main currency pairs little changed

The reaction in the currency markets to Sunday’s election result in France remains muted, perhaps a reflection of the uncertainty about the way forward for the country politically following the outcome of the vote. The euro is only marginally lower from where it closed out last week, trading at around $1.0830 and 84.5p against the dollar and sterling respectively. The pound is a touch lower from Friday’s close against the US currency hovering just above $1.28. The focus today turns to Fed Chair Powell’s testimony on the US economy and monetary policy to the Senate Banking Committee.

Elsewhere, French government bonds outperformed yesterday, with 10-year yields declining by around 5bps compared to a fall of about 2bps in equivalent German bonds, though French stocks underperformed slightly, shedding around 0.6%. Meanwhile, the S&P 500 in the US managed to eke out a very modest gain, but enough to see it close at yet another all-time high.

Ahead of its next monetary policy meeting at the start of next month, Bank of England MPC member Haskel notes that, while there are “considerable encouraging signs” regarding the inflation outlook, “the continued tight and impaired labour market, means that inflation will remain above target for quite some time (hence) I would rather hold (interest) rates until there is more certainty that underlying inflationary pressures have subsided sustainably.”

In his testimony today, Fed Chair Powell is likely to acknowledge both the recent low monthly inflation readings and some signs that the pace of economic growth is moderating; however he’s also likely to reiterate that the Fed needs some more confidence that inflation is returning sustainably towards the 2% target before lowering interest rates.

It is very quiet on the economic data front today with the small business optimism index in the US the only release of note. In Ireland, the government publishes the Summer Economic Statement, which will set out the parameters for the pre-election budget to be presented on October 1st.