Main currency pairs treading water

The main currency pairs largely treaded water yesterday with the dollar under a little bit of pressure amid some concerns about a government shutdown in the US. The latter now seems more likely, as talks to resolve the issue didn’t appear to make much progress, one consequence of which would be to delay Friday’s payrolls report according to a statement from the Department of Labor. The euro and sterling are trading at around $1.1745 and $1.3450 against the dollar respectively this morning, not much changed really from yesterday morning’s levels, while EURGBP is trading at around £0.8730.

Government bond yields ended lower yesterday, mainly at the longer end of the curve (10-year yields were down around 4-5bps across the main markets), amid the concerns about a US government shutdown and falling oil prices, the latter in response to hopes for a possible end to the war in Gaza. Equity markets managed to advance on the day, with US and European stocks both ending in positive territory although gains were modest.

GDP data in the UK released a short while ago – a third and final estimate of growth in Q2 – were in line with expectations and largely unrevised from the previous estimate. Growth eased to 0.3% q-o-q from 0.7% in the first quarter of the year, the latter having been boosted by some frontloading of activity ahead of anticipated US tariffs, resulting in a deceleration in the annual (y-o-y) pace of growth to 1.4% from 1.7%.

Bank of England member Ramsden says the risks to the inflation outlook in the UK are “balanced” and there is “scope for further removal of (monetary) policy restraint looking ahead”. He believes “the gradual and careful approach that the MPC (Monetary Policy Committee) has taken to removing policy restraint remains appropriate,” suggesting he may vote for a rate cut at the MPC’s next meeting in early November.

ECB Chief economist Philip Lane says “it doesn’t look like we’re going back to the pre-pandemic equilibrium of very low inflation,” nor does he see “substantial risks of remaining noticeably above the 2% inflation target either.” Inflation in the zone averaged not much more than 1% over the decade preceding the pandemic, while the ECB’s latest forecast has it averaging in and around 2% over the period 2025-2027.

For the day ahead, the main economic data releases are consumer confidence (for September) and job openings/job layoffs (for August) in the US. The latter should attract some attention given the Fed’s concerns about ‘increased downside risks’ to employment, which prompted it to resume lowering interest rates at its meeting earlier this month. There’s also a flash reading of September inflation in Germany, ahead of tomorrow’s flash inflation estimate for the Euro area.