Main currency pairs steady
Consolidation is still the name of the game in FX markets for now with the main currency pairs remaining relatively steady. The euro continues to trade a little shy of $1.08 against the dollar and a touch below 85.5p against sterling this morning, while the pound is still trading just north of $1.26 against the US currency.
It was uneventful enough in bond markets yesterday too with yields marginally higher on the day. In equity markets, the S&P 500 in the US added almost 1%, setting another new all-time high in the process, while European stocks closed slightly lower on the day.
Commentary from Fed members yesterday carried fairly consistent messaging. While further evidence is needed that inflation is returning sustainably to target, interest rate cuts are likely later this year, but the Fed should also proceed carefully when lowering rates. The market currently sees about a circa 70% chance of a first cut occurring at the Fed’s May 1st meeting.
Bank of England MPC member Breeden says she has “become less concerned that rates might need to be tightened further… instead my focus has shifted to thinking about how long rates need to remain at their current level”, which echoes the message from last week’s MPC meeting.
Past interest rate increases are having an impact on the labour market in the UK. The latest KPMG/REC Report on Jobs notes that “ongoing uncertainty about the economic outlook continued to impact hiring at the start of the year” as permanent placements fell at a “sharp and accelerated pace”, while starting salary inflation softened to a 34-month low in January.
Meanwhile the latest RICS housing survey in the UK notes that an easing in mortgage rates recently and expectations of future interest rate cuts by the Bank of England have contributed to “further improvement in key metrics”, with new buyer enquiries increasing, expected sales volumes rising, and house price declines easing.
It is another quiet day ahead on the economic data front, with the regular weekly jobless claims report in the US the only release of note. There are a number of central bank members schedule to speak, including the BoE’s Mann who voted for a 25bps rate hike at last week’s meeting.