Bank of Ireland Dealer Comment

17:16 16 Jul 2024
Today's Talking Points 16.07.24

Market Commentary

It was relatively uneventful in currency markets yesterday. The euro rose to an intra-day high of $1.0920 against the dollar but is back down at around $1.09 this morning, while it is holding onto most of yesterday’s modest gains against sterling trading just north of 84p. The pound has edged down a bit further against the dollar, having retreated from the $1.30 level on Friday, trading at about $1.2960. Meanwhile, today’s retail sales data in the US could be important – in particular, they may weigh on the dollar if they add to recent signs that consumer spending is slowing.


Yesterday’s Events

In government bond markets, US yields have nudged down overnight, reversing some of yesterday’s increase, while German and UK yields are lower at the open having closed marginally lower yesterday. In equity markets, European stocks shed more than 1%, wiping out Friday’s increase, while US indices chalked up modest gains.

Fed Chair Powell has reiterated that the central bank will not wait until inflation is all the way back to the 2% target before lowering interest rates, saying that to do so would risk inflation undershooting its target. He also reiterated that more “good” inflation data, like recent readings, would increase the Fed’s confidence that inflation is on a sustainable path back to 2% (which in turn would allow it to begin easing policy).

In the Euro area, industrial production fell quite sharply in May, having been flat the previous month, and was running almost 3% below its level from the year previous. Meanwhile, the ECB’s latest Access to Finance survey shows firms expect wage increases to moderate over the next 12 months (with an average increase of 3.3% expected). This will be a source of reassurance for the ECB, as its forecast for a return of inflation to target is predicated on wage growth slowing.


The Day Ahead

Looking to the day ahead, economic data due include retail sales in the US (as mentioned above), the trade balance in the Euro area, and the ZEW Investor Sentiment survey in Germany, while the ECB publishes its latest Bank Lending Survey.

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Author:Ellen Moloney