Sterling rises

The euro and sterling edged higher against the dollar over the course of the day yesterday. The single currency got back up to around $0.98 while there was some respite for sterling which moved over $1.11 for the first time since before last week’s mini budget. Sterling’s gains outpaced the euro with the EURGBP cross dipping to 88p again. There was also good news for the UK in data released earlier today which showed that the economy grew by 0.2% quarter-on-quarter in the second quarter where revisions reversed the previous estimate of a 0.1% contraction

Given the large gains made by UK bonds following the BoE intervention on Wednesday its come perhaps as no surprise there was some retrenchment yesterday. 10-year gilt yields rose 12bps to 4.12% over the session, well below the 4.5% yield on Tuesday but remains well above the yields prevalent before the Chancellor’s tax cut announcements last week that raised market hackles. Bonds in other jurisdictions give up some of the gains they made on Wednesday, with German 10-year bunds up 8bps to nearly 2.2% and US 10-year treasuries ticking up a couple of bps to over 3.75%

The euro area economic confidence indicator fell by more than expected in September, dipping to 93.7 from 97.3 when a smaller drop was forecast. That’s the lowest reading since November 2020 and is the seventh consecutive monthly decline. The dip this month was broad based across sectors with Europeans dealing with energy woes and the prospect of an expensive winter without Russian gas

German annual inflation hit double digits  in September, the first time since the introduction of the euro. The EU harmonised rate rose to 10.9%, up from 8.8% in August. A spike in inflation was expected as the temporary discounts on public transport and fuel were removed but this was ahead of expectations.  Meanwhile, the German Government has announced it will cap gas prices which will support consumers but might also keep a lid on headline inflation rates. In any event, this latest reading from Germany – and the very likely high flash reading for the entire Euro Area – will reinforce the ECB’s position that more interest rate hikes are needed

On the agenda today, euro area ‘flash’ HICP and unemployment, then later on US personal income and spending and University of Michigan confidence