Quiet start to the week in FX

While it was a relatively quiet start to the week in FX markets, the dollar was slightly firmer amid a renewed slide in US equities. The euro and sterling are trading at around $1.1595 and $1.3155 respectively this morning, versus last Friday’s closing levels of $1.1620 and $1.3170. EURGBP briefly dipped below the £0.88 level during the course of yesterday’s session, but  is trading at around £0.8810 at the start of play today.  There’s not much by way of economic data due today, so the currency pairs may be confined to tight trading ranges again.

After a respite of sorts on Friday, US stocks sold off yesterday with the three main indices shedding around 1%. European equities fell for a third consecutive session, also shedding around 1%. Further weakness looks in store for today (markets in Asia were mostly in the red overnight) ahead of Nvidia’s results tomorrow.

UK government bond yields nudged lower by around 4-5bps across the curve, though this reversed only a small portion of the sharp increase (+10-15bps) that occurred at the end of last week.  US yields have edged down overnight (by 3-4bps) amid the continuing weakness in equity markets with European yields following suit at the open this morning.

Fed Governor Waller supports cutting interest rates “by another 25 basis points at our December meeting”,  saying he “not worried about inflation accelerating or inflation expectations rising significantly” but is concerned about the “weak labour market”. He also adds that it’s “unlikely the September jobs report (due tomorrow) or any other data in the next few weeks would change my view that another cut is in order.” Meanwhile, Waller’s Governor colleague (and Fed Vice-Chair), Jefferson, says he continues to view the risks to employment “as skewed to the downside”, suggesting he is open to a rate cut next month.

The European Commission in its latest forecasts  is projecting Euro area GDP growth of 1.3% in 2025, revised up from 0.9% in its previous (spring) forecast, and 1.2% in 2026, lowered a touch from 1.4%, with growth in 2027 seen at 1.4%. Inflation is forecast to run in line with the ECB’s 2% target, averaging 2.1% this year, 1.9% next year, and 2.0% in 2027.

For the day ahead, as indicated above, it’s quiet enough in terms of economic data releases with the ADP weekly jobs report and the NAHB housing market index both due in the US. There are a number of central bank members (from the Fed/ECB/BoE) scheduled to speak over the course of the day.