Pound gives up some of yesterday’s gains

It remains fairly sedate in FX. Sterling did edge higher against the dollar and euro yesterday, getting up to around $1.3570 and below £0.8710 respectively at one stage, with the ‘risk -on’ mood in markets (evidenced by a further rise in equity markets) and some small paring back of expectations for a Bank of England rate cut next month supporting the currency. It has slipped this morning though (to about $1.3535 and £0.8720) ahead of the results of a key by-election taking place today in the Greater Manchester constituency of Gorton and Denton (which Labour is at risk of losing having won convincingly in the 2024 general election). Meanwhile, the euro has nudged back up above the $1.18 level against the dollar this morning, trading at about $1.1810.

Equity markets rallied again yesterday with US and European stocks gaining almost 1%. Asian markets are mixed overnight though, despite better than expected results from Nvidia after the US close, while European indices have opened marginally higher this morning. It was another uneventful day in government bond markets with yields little changed.

Headline and core CPI inflation in the Euro area were confirmed at 1.7% and 2.2% in January according to yesterday’s final reading, down from 2% and 2.3% in December. Within core, a decline in services inflation to 3.2% (from 3.4%) more than offset an increase in goods inflation to 0.4% (from 0.3%).

ECB member Vujcic notes that, “although inflation is back at our medium-term target again, the overall economic and geopolitical environment leave no room for complacency,” adding that he will continue to monitor “evolving risks” to the outlook and decide on interest rates on a meeting-by- meeting basis.

For the day ahead, economic data due include money supply/credit growth and the European Commission’s Economic Sentiment Indicator in the Euro area, and the regular weekly jobless claims report in the US. ECB President Lagarde speaks at the European Parliament, while a few Fed officials are due on the wires during the course of the day.