US short-dated yields head south
The dollar failed to sustain early gains yesterday as some firming of Fed rate cut expectations and a decline in US bond yields weighed on the currency. Hence the euro and sterling are back trading at around $1.1640 and $1.35 respectively this morning, well off yesterday’s lows of circa $1.1575 and $1.3415. EURGBP is little changed and at about £0.8625 remains in the lower end of its recent tight trading range.
US 2-year bond yields staged a decent rally, falling by around 7bps to 3.61%, which is just shy of their 2025 to date low at the end of April and some 20bps lower than this day last week, just before Fed Chair Powell signalled a rate cut may be in the offing next month. US 10-year yields also finished lower, by around 3bps, while 30-year yields – which have been under pressure since Trump announced he was firing Fed member Cook – ended broadly flat, having been 4-5bps higher earlier in the session. Elsewhere, French bonds underperformed a touch with yields ending slightly higher on the day, while German yields closed marginally lower and UK yields finished largely unchanged. European yields generally have edged down at the start of play today
In equity markets, European stocks steadied following two days of fairly heavy losses, chalking up small gains, while US stocks ended slightly higher on the day. Nvidia’s results, released after the New York close, were broadly in line with expectations but this wasn’t enough to keep the market happy (its share price losing ground post-results), though European indices have opened a touch higher this morning,
Fed member Williams says the US economy is “going through an adjustment process” with growth “slowing but not stalling”, adding that he believes it will be “appropriate to move interest rates down over time” while also indicating he’s open to a rate cut at September’s monetary policy meeting (16th-17th).
It’s a busy enough day ahead in terms of economic data, with money supply/credit growth and the European Commission’s Economic Sentiment Indicator due in the Euro area and Q2 GDP (a second estimate) and the regular weekly jobless claims scheduled in the US.