Sterling drifts a little lower

The main currency pairs are not much changed following the sizeable enough moves seen last week. The euro is a touch firmer against the dollar but remains below the $1.10 level, trading at around $1.0980 this morning, and has also nudged up against sterling to £0.84. The pound has slipped against the US currency to trade at around $1.3070, well off its 2024 to date high of over $1.34 in late September.

US bond yields continued to head north yesterday, as the market continued to reprice the outlook for US interest rates following Friday’s employment report, with 2-and 10-year yields rising by around 7-8bps. Yields have come back a bit in overnight trading, following some reassuring comments on interest rates from Fed members, with German and UK yields also nudging lower at the open today.

Equity markets had a mixed session. The S&P 500 in the US shed almost 1%, reversing the gains it made on Friday post the jobs report, while European stocks chalked up modest gains of less than half a percent.

Fed member Kugler says she “will support additional cuts in (interest rates) to move toward a more neutral policy stance over time,” which will ensure “we can continue making progress on inflation while avoiding an undesirable slowdown in employment growth and economic expansion.”

ECB’s Villeroy says interest rates will “quite probably” be cut at this month’s meeting (17th), noting that the central bank “must pay attention to the risk of undershooting our (inflation) objective due to weak growth and a restrictive monetary policy for too long.” Market expectations for a 25bps cut next week, and a further 25bps reduction at the December meeting, remain intact.

It is quiet enough on the economic data front today. The trade balance and small business optimism index are due in the US, while the Atlanta Fed will publish its latest estimate of the run-rate for US GDP growth in Q3.