Some respite for the euro

The euro fell to the very bottom of the $1.05 to $1.12 range against the dollar that has prevailed for the past couple of years before rebounding to about $1.0580, and despite having been buffeted by comments by the Fed’s Powell – who said the central bank is not in a hurry to cut US interest rates – is trading at around $1.0560 this morning. It is something similar for sterling, which hit intra-day lows and highs of $1.2630 and $1.2720 yesterday and is currently trading at around $1.2660. Meanwhile, EURGBP is a little firmer this morning at about £0.8340 following slightly softer than expected UK GDP data released earlier.

Powell’s remarks halted an earlier decline in US 2-year bond yields, which ended higher on the day, as the market pared back the chances of a rate cut next month (now seen at less than 50/50), though 10-year yields still ended a little lower. German and UK yields also closed lower and are only marginally higher at the open today. In equity markets, European stocks had a very strong session – up 2% – as they reversed some of their recent underperformance, while US indices gave up some more of their recent gains, shedding around half a percent or so.

In his comments yesterday, Fed Chair Powell said the central bank “is moving (monetary) policy over time to a more neutral setting but the path for getting there is not preset”, adding “the economy is not sending any signals that we need to be in a hurry to lower rates” and that the  “strength we are currently seeing” in economic activity “gives us the ability to approach our decisions carefully.”

The minutes of the ECB’s October monetary policy meeting, at which interest rates were cut by 25bps to 3.25%, note that “the incoming information on inflation had shown that the disinflationary process was well on track” and that “there was increasing confidence that inflation would converge to the 2% target in a timely manner” and earlier than previously thought. The market fully expects the ECB to cut rates again next month and indeed sees them the best part of 100bps lower by March of next year.

GDP growth in the UK slowed to 0.1% quarter-on-quarter in Q3 from 0.5% in Q2 according to data released earlier this morning, though the underlying picture was better than the headline number suggests with both consumer spending and business investment posting solid increases in the quarter

There are some important US economic data due today, including retail sales and industrial production, while the European Commission publishes its latest economic forecasts. A number of Fed and ECB members are due to speak over the course of the day also.