Sterling’s gains short-lived

Sterling has given up a good chunk of its mid-week gains against the dollar and the euro, retreating to around $1.3470 and £0.85 respectively (from earlier highs of around $1.3560 and £0.8455). The euro is holding above the $1.14 level against the US currency, having dipped below this level at the beginning of the week, trading at around $1.1450. Oil prices remain off their recent highs, with Brent crude trading just below $85 per barrel, but Asian equities were a good bit lower overnight, led by falls in technology stocks, which is spilling over into European markets at the open this morning.

US government bond yields edged up, having fallen quite sharply over the previous couple of sessions, helped by some solid (US) economic data, while German and UK yields followed suit, ending a couple of basis points higher on the day. In equity markets, European stocks ended with modest gains but US indices sold off into the close, led by the Nasdaq which shed almost 2%.

Fed member Logan calls for “modestly higher interest rates,” saying that “inflation has been too high, for too long, and does not appear to be on track all the way back to 2 percent,” with risks to the inflation outlook “to the upside.”

Bank of England MPC member Breeden says “we have a softish (UK) economic outlook; we have slack in the labor market…those two things mean that that the (energy price) shock is less likely to become embedded and lead to inflationary dynamics that we might need to lean against (by raising interest rates).”

For the day ahead, economic data due include the University of Michigan consumer confidence/inflation expectations survey (July), industrial production (June) and import prices (June) in the US, and a final reading for CPI inflation in June in the Euro area (the ‘flash’ reading showed headline inflation fell to 2.8% last month from 3.2% in May).