FTSE 100 Rises Amid Easing Gilt Yields EURUSD Faces Political Pressures

The FTSE 100 extended its winning streak to a third day, supported by easing gilt yields, falling oil prices, and positive sentiment following the Nasdaq's record high. Oil prices have dropped for four consecutive sessions, down about 2.5% since Friday, contributing to a broader decline in global bond yields, although they remain near multi-decade highs.

The 10-year gilt yield fell to 5.36%, down from 5.5% at the start of October, a level not seen since 1998. Higher gilt yields and persistent inflation concerns have pushed swap rates up, increasing borrowing costs in the mortgage market. The five-year fixed mortgage rate has risen to around 6%, its highest in three years, while the two-year fixed rate has climbed to 5.98%. These higher rates could weigh on housing demand and affordability, potentially slowing house-price growth.

Today, the UK construction PMI for September is expected to show continued contraction, with a forecast of 45.4, slightly up from 44.3 in August but still below the 50 level that separates expansion from contraction.

Meanwhile, the EUR/USD exchange rate is struggling around 1.12, facing pressure from political uncertainty and weak German data. German factory orders plunged 10.6% month-on-month in August, the largest decline since January, highlighting challenges in Germany's manufacturing sector. The euro remains under pressure from high debt levels and political gridlock in France, as well as an upcoming snap election in Spain.

For the euro to recover, markets would need to see a significant drop in oil prices, renewed expectations of ECB monetary tightening, and greater confidence in addressing eurozone budget deficits. The U.S. dollar remains supported by elevated Treasury yields, which have risen to multi-decade highs.