Sterling under some pressure
Sterling lost some ground yesterday amid the controversy that has arisen in relation to the leadership of the UK Prime Minister, Keir Starmer. Meanwhile, data for UK GDP in Q3 published a short while ago were slightly softer than expected, keeping the pound under pressure. It is trading at around £0.8840 against the euro this morning – in and around fresh lows for 2025 to date – and at about $1.3140 versus the dollar. The euro traded in a tight range against the US currency during yesterday’s session, but has edged up to over $1.16 at the start of play today. The government shutdown in the US has formally ended following the passing of a vote in the House overnight, although this only keeps the government funded until the end of January next year.
US government bond yields nudged lower yesterday, falling by around 3-5bps across the curve, partly in response to weaker than expected jobs data for October published on Tuesday. German and UK yields ended broadly flat on the day and are little changed again at the open this morning. In equity markets, European stocks performed quite strongly for a third consecutive session, gaining just over 1%, while US indices were again mixed, with the Nasdaq closing lower for a second day running (albeit again marginally so) but the Dow Jones and S&P 500 chalking up modest gains.
GDP growth in the UK eased to 0.1% quarter-on-quarter and 1.3% year-in-year in Q3, according to this morning’s release, from 0.3% and 1.4% respectively in the second quarter (and 0.7%/1.7% in Q1 2025). The underlying picture was a bit better than suggested by the headline GDP reading though, with investment (excluding inventory-building) increasing by 1.8% on the quarter and consumer spending edging up by 0.2% having increased by 0.1% in the second quarter.
Fed member Collins says she has “a relatively high bar” for lowering interest rates again “in the near term.” She believes that “providing additional monetary support to economic activity runs the risk of slowing – or possibly even stalling – the return of inflation to target,” adding that “absent evidence of a notable labour-market deterioration, I would be hesitant to ease policy further.” On our count, this brings to four the number of current voting members of the twelve-person FOMC indicating they would prefer to keep rates unchanged at next month’s monetary policy meeting.
Looking to the day ahead, it is quiet again in terms of economic data with industrial production in the Euro area the only release of note (it will take a while before US data starts to come back on stream following the ending of the government shutdown). There’s a smattering of ECB/Fed members scheduled to speak during the day.