Sterling retreats

Sterling is giving up some ground after the release of slightly softer than forecast labour market data in the UK earlier this morning, falling back to under $1.28 against the dollar and to about 85.5p against the euro. The latter, meanwhile, has drifted a little lower against the dollar (to $1.0930), ahead of CPI inflation data in the US later today.

Government bond yields nudged higher yesterday, reversing a little of the sizeable enough decline in yields that occurred last week. Equity markets were on the back foot for a second consecutive session, with both US and European stocks ending lower on the day.

ECB member Kazimir signalled June as the likely date for a first cut in interest rates, adding that he favours “a smooth and steady cycle of policy easing.” The market is priced for a 25bps reduction in June and sees a further 75bps worth of cuts over the second half of the year.

Employment in the UK was broadly flat in the three months to January according to this morning’s labour market report, while the unemployment rate was largely unchanged at 3.9%. The annual rate of growth in average weekly earnings (excluding bonuses) eased further to 6.1% (slightly lower than the consensus expected), still relatively elevated but continuing to head in the right direction as far as the Bank of England is concerned.

The key economic data release today is the February CPI report in the US. The consensus expects the headline rate of inflation to have remained at 3.1% last month, but core inflation is seen falling to 3.7% from 3.9% in January.