EUR / USD
The Euro was unable to make any headway after Thursday’s European open and continued to edge lower amid the firm overall dollar tone.
ECB council member Villeroy stated that rates should peak in the next three meetings and added that rates are clearly in restrictive territory.
US initial jobless claims edged higher to 229,000 in the latest week from 225,000 previously, but well below consensus forecasts of 250,000. Continuing claims also declined slightly to 1.79mn from 1.80mn previously, maintaining expectations of a firm labour market.
The first quarter GDP estimate was revised higher to 1.3% from the flash reading of 1.1% with a slightly higher estimate for consumer spending. The PCE prices index was also revised slightly higher to 5.0% from 4.9%.
Pending home sales were unchanged for April after a 5.2% decline the previous month and slightly below market expectations.
The Chicago Fed National activity index strengthened to 0.07 for April from –0.37 the previous month and slightly stronger than expected.
The Euro dipped to fresh 2-month lows just above 1.0700 before a tentative recovery to 1.0740 on Friday. Overall dollar sentiment remained firm, but there were reports that Chinese state banks were selling dollars to support the yuan during the Asian session which helped curb wider dollar buying.
The latest US PCE prices data will be important for underlying market sentiment on Friday with pre-weekend position adjustment also significant.
Bank of Japan governor Ueda stated that the bank is starting to see some good signs in the economy, but there is some way to go to achieve the inflation target in a stable and sustainable manner. He added that patient monetary easing would continue.
Later in the day, Ueda stated that changing the yield curve control target to 5-year bonds from 10-year bonds is a possible future tweak.
Markets were continuing to monitor the debt-ceiling issue with ratings agency DBRS putting the US rating under review with a negative outlook.
House speaker McCarthy stated that negotiations have made some progress, but there are still some outstanding issues.
Fed Governor Collins stated that a pause on rate action would give the Federal Reserve time to measure the impact. She added that inflation is too high, but sees promising signs of moderation. Futures markets indicated a 45% chance that rates would be increased again in June with close to a 70% chance that rates will be increased by July. The dollar overall maintained a strong tone with highs above 139.80.
There was no deal on the US debt ceiling overnight with a deal needed over the weekend in order to enact legislation before June 1st.
Japanese finance minister Suzuki stated that FX rates should be set by fundamentals and moves are being watched closely.
The dollar briefly moved to fresh 6-month highs just above the 140.00 level before a retreat to near 139.70.
The UK CBI retail sales index dipped to –10 for May from 5 the previous month and well below expectations of 10 with retailers expecting no change next month. There was little overall impact with markets still expecting that a decline in energy prices will help cushion the economy over the next few months.
Overall risk appetite was more fragile as UK equities moved lower which curbed potential Sterling support.
Sterling dipped again to lows close to 1.2310 against the dollar with the Euro edging above 0.8700 despite gilt yields hitting 6-month highs.
Bank of England MPC member Haskel stated that further interest rate hikes cannot be ruled out and he wants to lean against the risks of inflation momentum.
UK retail sales volumes increased 0.5% for April and marginally stronger than expected which had little impact with Sterling trading around 1.2335 against the dollar.
The Euro was unable to make headway on Thursday and tended to drift lower amid a lack of underlying confidence in the Euro-Zone outlook. The dollar was unable to move above 0.9070 and tended to lose some ground.
There was little net change on Friday with the dollar trading just below the 0.9050 level as markets continued to monitor global interest rate developments.