Stronger US services sentiment data sees dollar gain

The dollar gained on the euro yesterday with better than anticipated services sentiment data helping the US currency. The dollar broke out of the $1.11 range it has been in for the past few days against the euro and is now trading at $1.10. Against sterling, the dollar is at $1.28. The euro lost a little bit of ground to sterling and is hovering around the 86p level and threatening to drop down to 85p range

The US ISM non-manufacturing index rose to 54.7 in October from a three year low of 52.6 in September. The advance was broad based with sub indices on employment, orders and activity all improving. The services side of the US economy is holding up relatively well and is not being dragged down too much by the weakness in the manufacturing sector and this data, combined with the upside surprises in job and GDP data last week, may be assuaging fears that US growth was set to slow substantially.

The better then expected data, rumours about progress in US-China trade talks and a risk-on tone has seen bond yields rise in the past few days with US 10-year yields up to around 1.85%, 15bps higher than on Friday. In Europe, the rise in yields was smaller but 10-year bunds are now trading at around -0.3% from -0.4% last week

German factory orders rose 1.3% month-on-month in September. This is the first rise in a month since June and was driven by increased demand for investment and consumer goods and from customers outside the euro area. While the year-on- year change remains solidly negative at -5.4%, this unexpected boost brings optimism that the manufacturing sector in Germany may be stirring out of its slump

On the speaker front yesterday, the Bank of Spain’s Governor Hernandez De Cos said the euro area ‘needs’ some sort of fiscal union and cannot rely on Germany for fiscal stimulus and fellow ECB member Muller said ‘no change in ECB policy is expected in the near term’. In the US, the Fed’s Kaplan said Fed policy is ‘probably where it needs to be’ while his colleague Kashkari said rates were now ‘around neutral, slightly accommodative’

On the agenda, we get final euro area services PMI for October as well as retail sales. We also get further speakers from the ECB and Fed with Guindos and Holzmann from the former and Evans, Williams and Harker from the latter all due out