EUR lower as EU bond spreads widen
Good morning
EUR weakness is a current theme in the currency markets, EURUSD saw a low around 1.1215 yesterday while GBPEUR pushed as high as 1.1755. Widening spreads in EU bonds seemed to be the catalyst, the France/German spread moved to its widest level since 2012, now around 143bps compared to a 2026 low around 55bps after France revealed its latest budget plans. The spread between Italian and German 10 year bonds has also risen sharply, now around 120bps, double this year’s low. EURCHF fell sharply from 0.9480 to a low so far around 0.9305. Meanwhile, German Chancellor Merz has warned that Europe may face severe hybrid attacks from Russia including sabotage, cyber-attacks and destabilising activities. Merz said desperate Russian actions are evidence of its failures in Ukraine.
GBPUSD traded to a low of 1.3180 yesterday, not far off my key 1.3150 area. The US dollar strength came despite some slightly dovish comments from Fed officials who seem to suggest they can take time before raising rates again in order to see the impact of the recent rate rise. A rise in October now seems unlikely which will please Trump who has said it is bad the Fed raised rates but he doesn’t blame Warsh for the move. There are still some Fed officials who would like to see rates pushed higher again, for example Kashkari has said current rates are not particularly restrictive and he is pleasantly surprised with the resilience of the US economy.
Overall, it feels like more Fed rate rises could be seen but perhaps not urgent enough to come this year. US bond yields have dropped in response to money flowing into US treasuries which are regarded as more of a safe haven than other global bonds. The UK’s 30 year gilt yield pushed briefly above 6% yesterday.
In other crosses, GBP is a touch lower than the previous day, now 1.9035, 2.3525 and 1.8790 against AUD, NZD and CAD. GBP is also lower against Yen which now trades at 208.30 having seen a low yesterday of 207.60, helped by a bout of Yen buying in the afternoon and then after Japan’s higher inflation numbers released overnight. Japan’s EconMin Kiuchi said extraordinary monetary stimulus in Japan is no longer needed. Some talk doing the rounds of an early UK general election, possibly as soon as May 2027. Nothing confirmed on this
Oil prices remain firm as Trump sends a third aircraft carrier and 10,000 more troops to the Middle East, prompting thoughts that US could resume military attacks on Iran. The feeling is these may come after the US mid-term elections due on 3rd November. Trump has admitted that US are facing some ammunition shortages but insists stocks are being replenished.
EU inflation numbers are due out this morning but focus is more on the US nonfarms this afternoon. A headline of +60k is expected with risks seemingly to the upside. A higher reading could well give the US dollar a boost into the weekend. It’s a lighter economic calendar next week, FOMC and ECB minutes could be of interest but otherwise there is little in the way of major data.
To the weekend and it looks as though we may get a decent bit of sunshine, with temperatures hovering around 20°c. England footballers take on Croatia in the Nations League, will Tuchel stick with Alexander-Arnold? The Bahrain F1 grand prix takes place this weekend, delayed from its original date in April due to the US war on Iran. The race will be held in Malaysia due to ongoing instability in the Middle East but Bahrain retains the naming rights.
Have a great day, and a great weekend as and when it comes…
- 10.00 EU HICP
- 12.30 ECBs Vujcic speaks
- 13.30 US nonfarm payrolls
- 15.00 US factory orders
- 20.35 ECBs Nagel speaks
Comments