The EUR was well supported yesterday as numbers from Germany, whilst not great, came in better than what analysts were expecting. Q3 growth came in at -0.1% versus an expectation of -0.2%, and inflation fell from 4.5% to 3.8% versus an expectation of 4%. Economic confidence and services confidence came in better as well. GBPEUR hit a new 5-month low as a result. USD lost ground despite 10-year treasury yields rising by 6bps as Nikkei reported that the Bank of Japan is considering letting 10-year government bonds rising above 1%. Risk sentiment also recovered with Israel's ground operations in Gaza being considered less extensive than markets had feared before the weekend. Oil prices also declined adding to less demand for USD.
Market rates
* Daily move - against G10 rates at 7:30am, 31.10.23
** Indicative rates - interbank rates at 7:30am, 31.10.23
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Our thoughts
So the first central bank meeting this week, the BoJ, was perceived as dovish with the Bank taking a more flexible approached in controlling yields on 10-year government bonds, and described the 1% as a reference point. JPY has given up the gains it made yesterday following that Nikkei report. PMI data from China came in softer than expected, with the manufacturing sector going back into contraction in October, causing USD to be up slightly to start the day. Ahead of the BoE meeting on Thursday, the British Retail Consortium revealed this morning that shop price inflation eased for the fifth consecutive month, now down to 5.2%. The Bank are expected to keep rates as they are.
Today's focus will be on the eurozone inflation and growth numbers, and whether this will give further support for EUR. In the afternoon we have the first set of job numbers from the US in the form of the employment cost index, the Fed's preferred measure of wages.
Chart of the day
Focus for the ECB is now one of being concerned more about economic growth rather than inflation. German numbers yesterday showed that inflation fell more than expected, adding to some EUR support as well as growth being slightly better. Similar readings today from the whole bloc will likely add to further EUR support, especially if risk sentiment stays slightly more buoyant.
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