Pound on the back foot

Sterling has lost some more ground ahead of tomorrow’s Bank of England monetary policy meeting, slipping to $1.2480 against the dollar and to 86p against the euro, suggesting the market may be expecting a dovish tilt on interest rates. The single currency, meanwhile, is marginally lower against the dollar this morning trading at about $1.0745 (from around $1.0770 yesterday morning).

In government bond markets, UK 10-year yields closed around 10bps lower yesterday although some of that was catch-up with the decline in yields that occurred elsewhere on Monday (when UK markets were closed), while equivalent US and German yields fell by 4-5bps. Equity markets had a mixed session, with European stocks adding another 1% or so but US indices finishing largely flat on the day.

Fed member Kashkari believes “the most likely scenario (for monetary policy) is we sit here for an extended period of time,” but says “if inflation starts to tick back down or we saw some marked weakening in the labour market then that might cause us to cut back on interest rates.”

ECB member de Cos says inflation in the Euro area is on a path that will allow the central bank “to begin reducing the current level of (monetary policy) restriction in June,” but he adds that it will continue to take its decisions meeting by meeting “without committing to a specific path for  (interest) rates.”

Retail sales volumes in the Euro area ended the first quarter of the year on a firm note, increasing by 0.8% in March (after dipping by 0.3% in February) to leave them 0.7% higher than in the same month in 2023 (the first positive year-over-year change since September 2022). Separately, industrial production in Germany fell back in March (by 0.4% on the month) albeit having risen strongly in both January and February.

It is extremely quiet on the economic data front today with little of note due for release, though we do have a number of Fed and ECB members on the wires over the course of the day.