Main currency pairs tread water

Markets await developments in relation to the war in Iran, in particular regarding any resumption of talks ahead of the end of the current ceasefire tomorrow. The main currency pairs are not much changed from yesterday morning, with the euro and sterling both marginally firmer against the dollar at around $1.1775 and $1.3520 respectively. EURGBP remains very tightly range-bound as it continues to hover just above the £0.87 level.

Government bond yields nudged higher with German yields rising by 3-5bps and UK yields up about 5-6bps. Equity markets started the week on a soft note. European stocks shed more than 1%, while US indices ended 0.3% lower after managing to rally a bit into the New York close.

ECB President Christine Lagarde says “uncertainty about the duration of the (energy) shock and the breadth of pass-through (to prices more broadly) argues for gathering more information before drawing firm conclusions for our monetary policy,” suggesting interest rates will remain at 2% at this month’s meeting. She adds that, “if the (Middle East) conflict resolves quickly, the direct energy price shock could prove to be at the smaller end of expectations, and the economic impact would be contained,” while also warning that “the outlook remains fragile and worse paths are still possible.”

The unemployment rate in the UK fell to 4.9% in the three months to February (from 5.1% in the three months to November) according to labour market data released a short while ago. Wage growth eased further nonetheless, with the year-on-year increase in regular weekly earnings dipping to 3.6% in December-February (the slowest pace of increase since late 2020).

For the day ahead, economic data due include retail sales (March) and the weekly ADP employment report in the US and the April ZEW survey of investor sentiment for the Euro area/Germany. There are a few ECB members due on the wires during the course of the day, while also of interest, Fed Chair nominee Kevin Warsh appears before the Senate Banking Committee.