Some respite for the euro

There was some mild respite for the euro in yesterday’s session, having been under pressure recently, with the single currency gaining ground against both the dollar and sterling. It is trading at around $1.0680 and at 85.7p respectively this morning, while the pound is also slightly firmer against the dollar at $1.2460.

There was also some respite for US bonds yesterday with 2- and 10-year yields falling by around 5bps and 10bps respectively, while German and UK yields were largely unchanged on the day. In equity markets, the S&P 500 in the US closed lower for a fourth straight session, shedding around half a percent, while European stocks ended broadly flat.

The Fed’s latest Beige Book report on current economic conditions, which is based on largely qualitative information from business and other contacts, is somewhat at odds with the recent hard data on the US economy. It notes that “overall economic activity expanded slightly, on balance, since late February” (with) weakness in discretionary (consumer) spending as consumers’ price sensitivity remained elevated” (while) “firms’ ability to pass cost increases on to consumers had weakened considerably in recent months, resulting in smaller profit margins.”

ECB’s Vasle says “the economic situation in the US is at the moment different from the Euro area, so it’s a logical consequence that the reaction of monetary policy might also be different”
though he adds that “this divergence has limits.”

Fed member Mester says the central bank shouldn’t be in a hurry to cut interest rates. She is “still expecting inflation to come down but we need to be watching and gathering more information before we take an action” (on rates).

Economic data due today include construction output in the Euro area and weekly jobless claims and existing home sales in the US, while there are a number of central bank members scheduled to speak over the course of the day.