US inflation data today
The main currency pairs were confined to relatively narrow ranges yesterday. The euro traded between $1.1640 and $1.1680 against the dollar and is hovering around $1.1660 this morning. Sterling moved between $1.3325 and $1.3385 versus the US currency and is currently trading at about $1.3350. Having edged up to a high of £0.8720 during yesterday’s session, the pound is at around £0.8735 against the euro this morning, little changed from yesterday morning’s levels. Elsewhere in FX, the yen continues to advance against the dollar, buoyed by speculation of a Bank of Japan rate hike later this month. Meanwhile, ahead of next week’s Fed meeting, US PCE inflation data for September (delayed because of the government shutdown) is published later today.
In government bond markets, US yields rose by 3-4bps across the curve, partly in response to lower than expected new jobless claims last week (though the latter may have been distorted due to the Thanksgiving Holiday), while German yields were a couple of basis points higher. UK yields, in contrast, ended lower on the day, with 30-year yields falling by around 5bps. The latter are now down around 15bps since immediately before Rachel Reeves budget last Wednesday, which along with sterling’s recent gains could be viewed as a ‘vote of confidence’ of sorts from investors.
Kevin Hassett – heavily tipped to be the next Chair of the Fed – says the central bank now seems “much more like its leaning in the direction of a rate cut” at next week’s meeting, adding that he would like to get to “much lower rates” over time. The market is also close to fully pricing in a 25bps cut in the fed funds rate (to 3.5%-3.75%) next week.
Today’s inflation data in the US are expected to show headline PCE inflation – the Fed’s target measure – ticked up to 2.8% in September from 2.7% in August (and a 2025 low of 2.3% in April) according to the consensus forecast, while core inflation (excluding energy and food prices) is seen nudging down to 2.8% from 2.9%. Consumer confidence for December is also due in the US, while elsewhere, a third estimate of Q3 GDP is due in the Euro area – the previous estimate showed growth picked up slightly to 0.2% q-o-q from 0.1% in the second quarter of the year.