Main currency pairs not much changed
The euro and sterling are not much changed from yesterday morning’s levels against the dollar, though off their intra-day lows of about $1.1575 and $1.3390 respectively, trading at around $1.1610 and $1.3425 this morning. Similarly, EURGBP is largely unchanged as it continues to hover in and around the £0.8650 area. Oil prices fell late yesterday (to lows of around $102 p/b in the case of Brent) after US Secretary of State Marco Rubio said there are “some good signs that a deal to end the war with Iran could be in sight.” This helped push US bond yields lower and US stocks higher in to the New York close, which is having positive knock-on effects on European markets this morning.
US government 10-year bond yields finished a couple of basis points lower on the day, reversing an earlier increase, while equivalent German and UK yields are edging lower at the start of play this morning, down around 3-5bps. In equity markets, the S&P 500 managed to end marginally in the black (+0.2%), having been off more than half a percent at one stage, while European stocks have opened well in positive territory today (+0.9%).
The fall-out from the war in Iran weighed on the Euro area and UK economies in May judging by the flash PMI surveys, with the headline indices falling well below the key 50 level (to 47.5 and 48.5 respectively) signalling a contraction in activity in the month, led mainly by weakness in services. Not surprisingly, the surveys also report continuing upward pressure on input costs and selling prices. Separately, UK retail sales data for April released a short while ago were weaker than expected, with volumes falling by almost 1.5% on the month to leave them flat in year-on-year terms.
The European Commission has lowered its forecast for Euro area GDP growth this year to 0.9%, from 1.2% previously, largely on account of the impact of the conflict in the Middle East, though it does expect growth to pick up to 1.2% in 2027. Inflation is now forecast to average 3% this year, revised up from 1.9%, but is seen falling back to 2.3% (close to the ECB’s 2% target) next year.
It is a quiet enough end to the week in terms of economic data, with the ECB’s Negotiated Wages Indicator for Q1 2026, the ifo Business Climate Index (May) in Germany, and a final reading for US consumer confidence in May the only releases of note scheduled for the day. A number of ECB members, including Christine Lagarde, and Fed Governor, Christopher Waller, are due to speak over the course of the day.