Sterling a touch softer at the off

There wasn’t a whole lot of movement in FX markets yesterday with the main currency pairs largely in consolidation mode, for now at least. The euro dipped to low of circa $1.15 against the dollar during the course of yesterday’s session but is back up to around $1.1530 this morning. Sterling is a touch weaker in response to comments from the UK Chancellor, Rached Reeves, hitting the wires just now, slipping to around $1.31 against the dollar and to circa £0.88 against the euro.

Government bond yields are edging lower this morning amid weakness in equity markets,  with yields down a couple of basis points in the main markets. Asian stocks were generally in the red overnight (the Nikkei in Japan was off almost 2%) and European markets are down more than 1% at the open this morning, while the futures market points to a decline in US stocks later today as well, with concerns about rich tech valuations and uncertainty about Fed interest rate policy cited as the reasons for the wobble.

Ahead of the Budget on November 26th, UK Chancellor Rachel Reeves says interest rates (at 4%) are still “a constraint on business borrowing and a burden on family finances (hence) the choices I make in the Budget this month will be focused on getting inflation falling and creating the conditions for interest rate cuts to support economic growth and improve the cost of living”, adding that her “commitment to the fiscal rules is ironclad.” (As noted, sterling is lower on the back of her comments).

Manufacturing activity in the US contracted for an eight month in a row in October according to the latest ISM survey, with the headline index falling  to 48.7 from 49.1 in September. Output and new orders contracted again last month, albeit at a slower pace than in September, while manufacturers’ input cost rose again, although also more slowly than in September.

Fed Governor Cook believes “downside risks to employment are greater than the upside risks to inflation” and sees the current level of interest rates as still “modestly restrictive”. She also says “every meeting, including December’s, is a live meeting,” suggesting she at least is open another cut in rates next month.

It is very quiet on the economic data front today, not helped of course by the government shutdown in the US, with little or nothing of note due for release. There are a large number of ECB members scheduled to speak over the course of the day.