Main currency pairs little changed

Softer than expected US economic data contributed to a sharp enough decline in bond yields yesterday, though the dollar didn’t do a whole lot. It is not much changed from yesterday morning’s levels against the euro and sterling, trading just north of $1.12 and $1.3320 respectively. The pound is marginally firmer against the euro at about £0.8415.

US bond yields fell by around 10bps in the case of both 2- and 10-year yields, while equivalent German yields were 7-8bps lower and UK yields down about 3-4bps. Yields generally are edging lower again at the start of play today. In equity markets, gains were relatively modest with European stocks advancing by around 0.3% and the S&P 500 in the US adding about 0.4%.

The US economic data published yesterday were generally on the weaker side of expectations. Retail sales were little changed in April, though there was an upward revision to spending in March, while manufacturing output fell last month having posted solid gains in the first quarter of the year. Producer prices were a good bit weaker than forecast, with both headline and core prices falling in April. The labour market is still performing well though, judging by the continuing relatively low level of new jobless claimants.

The Euro area economy grew slightly more slowly in Q1 2025 than previously estimated, with GDP increasing by a still solid 0.3% on a quarter-on-quarter basis (revised from 0.4%). Employment increased again in the quarter, with the pace of jobs growth picking up to 0.3% (q-o-q) from 0.1% in the final quarter of last year.

ECB member Kazaks says the central bank is “relatively close to the terminal rate”  for interest rates, adding that there may be a “couple” more reductions in the deposit rate from the current level of 2.25%.

In terms of economic data for the day ahead, consumer confidence/inflation expectations, housing starts, and import prices are due in the US, while the trade balance is scheduled in the Euro area.