The dollar, which lost ground to the euro over the course of last week, took back some of that in trading on Friday. The dollar rebounded after US PCE data showed that US inflation remains stubbornly elevated and makes it more likely the Fed keeps interest rates ‘higher for longer’. The euro was trading just below $1.07 at close of play on Friday, having touched off as high as $1.0750 in earlier trading, opening this morning at $1.0720 while GBPUSD trades at $1.2530. Sterling has gained a little on the euro in the past few days and starts off this week at 85.6p.
The yen weakened last week, with the Bank of Japan failing to announce any currency market intervention and keeping monetary policy on hold. The Japanese currency very briefly broke through a key level of Y160 to the dollar overnight, a 34-year low, but rebounded strongly to Y155 now prompting some market speculation that authorities may be stepping in though there is no confirmation or denial from the Japanese Ministry of Finance or Bank of Japan.
Yesterday’s Events
Government bond yields ticked upward for the most part last week, but on Friday we saw some reversal. US 10-year yields fell 4bps to 4.67% (but up from 4.6% at the start of last week) while German 10-year yields were down 5bps to 2.57% (from 2.5%) and UK 10-year yields down 4bps to 4.32% (from 4.2%). Yields are dipping lower on the open this morning.
US core PCE deflator rose by 0.3% in March from February, leaving the annual rate at 2.8%, unchanged from February but a touch ahead of estimates. Core PCE is the Fed’s ‘preferred’ measure of inflation and its stubbornness to recede further last month will reinforce views that the Fed needs to hold off on any rate cuts in the near term. Combined with a solid labour market, this data paints a picture for the Fed of households holding up in the face of sustained higher interest rates, but that inflation is a bit more persistent than hoped for. The Fed is virtually certain to keep rates on hold at their meeting this week and the market is now pushing out a first rate cut into the final months of this year.
For the ECB, the inflation data on Friday supported the case for beginning easing sooner rather than later. Consumer inflation expectations edged down again in March according to the Bank’s own data. Prices are seen increasing by 3% over the next year, down from 3.1% in February and from a high of 5.8% in October of 2022. The ECB will get further inflation data this week with the flash HICP for the euro area due. The June meeting remains key, when the Bank will have more data on inflation and wage developments but with each data release, so far, the arguments for a rate cut in June appear to get stronger.
The Day Ahead
It’s fairly quiet on the economic data front today with the CBI report due in the UK and consumer confidence in the Euro area. Looking to the week ahead, we have the GDP growth rate and Inflation data in the Euro Area on Tuesday as well as the unemployment rate on Friday. In the US, the Fed has its interest rate decision on Wednesday evening and non-farm payrolls will be out on Friday afternoon.
Today's Talking Points 29.04.24
Market Commentary
The dollar, which lost ground to the euro over the course of last week, took back some of that in trading on Friday. The dollar rebounded after US PCE data showed that US inflation remains stubbornly elevated and makes it more likely the Fed keeps interest rates ‘higher for longer’. The euro was trading just below $1.07 at close of play on Friday, having touched off as high as $1.0750 in earlier trading, opening this morning at $1.0720 while GBPUSD trades at $1.2530. Sterling has gained a little on the euro in the past few days and starts off this week at 85.6p.
The yen weakened last week, with the Bank of Japan failing to announce any currency market intervention and keeping monetary policy on hold. The Japanese currency very briefly broke through a key level of Y160 to the dollar overnight, a 34-year low, but rebounded strongly to Y155 now prompting some market speculation that authorities may be stepping in though there is no confirmation or denial from the Japanese Ministry of Finance or Bank of Japan.
Yesterday’s Events
Government bond yields ticked upward for the most part last week, but on Friday we saw some reversal. US 10-year yields fell 4bps to 4.67% (but up from 4.6% at the start of last week) while German 10-year yields were down 5bps to 2.57% (from 2.5%) and UK 10-year yields down 4bps to 4.32% (from 4.2%). Yields are dipping lower on the open this morning.
US core PCE deflator rose by 0.3% in March from February, leaving the annual rate at 2.8%, unchanged from February but a touch ahead of estimates. Core PCE is the Fed’s ‘preferred’ measure of inflation and its stubbornness to recede further last month will reinforce views that the Fed needs to hold off on any rate cuts in the near term. Combined with a solid labour market, this data paints a picture for the Fed of households holding up in the face of sustained higher interest rates, but that inflation is a bit more persistent than hoped for. The Fed is virtually certain to keep rates on hold at their meeting this week and the market is now pushing out a first rate cut into the final months of this year.
For the ECB, the inflation data on Friday supported the case for beginning easing sooner rather than later. Consumer inflation expectations edged down again in March according to the Bank’s own data. Prices are seen increasing by 3% over the next year, down from 3.1% in February and from a high of 5.8% in October of 2022. The ECB will get further inflation data this week with the flash HICP for the euro area due. The June meeting remains key, when the Bank will have more data on inflation and wage developments but with each data release, so far, the arguments for a rate cut in June appear to get stronger.
The Day Ahead
It’s fairly quiet on the economic data front today with the CBI report due in the UK and consumer confidence in the Euro area. Looking to the week ahead, we have the GDP growth rate and Inflation data in the Euro Area on Tuesday as well as the unemployment rate on Friday. In the US, the Fed has its interest rate decision on Wednesday evening and non-farm payrolls will be out on Friday afternoon.
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