Sterling regains ground

The euro traded in a narrow range of about a quarter of cent either side of $1.05 against the dollar during yesterday’s session and is hovering just below $1.05 this morning. Sterling has regained ground, after sliding over the latter part of last week, and is currently trading just shy of $1.27 against the dollar and at £0.8270 vis-a vis the euro, supported by stronger than expected UK wage growth data released earlier this morning.

Government bonds yields were little changed yesterday, ending marginally lower overall. European equity markets continued to give up some of their recent gains, shedding almost 0.5%, while in the US the Nasdaq was a notable outperformer, gaining more than 1% to close at a new all-time high, with the S&P 500 closing about 0.4% higher on the day.

The latest labour market report in the UK shows the annual rate of growth in regular weekly earnings re-accelerated to 5.2% in the three months to October from an upwardly revised 4.9% in the three months to September, with the y-o-y increase in private sector earnings picking up to 5.4% from 4.9%. The data will reinforce the Bank of England’s “gradual” approach to lowering interest rates, notwithstanding signs that the economy has lost momentum recently following strong growth over the first half of this year.

The Euro area economy contracted again in December judging by the latest PMI data, although at a slower pace than in November. The composite index remained below the key 50 level but rose to 49.5 (from 48.3), led by a notable jump in the services index which increased to 51.4 (from 49.5 in November).

In a speech yesterday, ECB president Christine Lagarde said “the current (monetary) policy stance is restrictive (but) if the incoming data continue to confirm our baseline (forecast), the direction of travel is clear and we expect to lower interest rates further”. She also noted    downside risks to inflation related to “weaker-than-expected growth and the increased uncertainty surrounding growth triggered by geopolitical events.”

Looking to the day ahead, there are a number of US economic data releases due including retail sales and industrial production for November and the housing market index for December.