EUR / USD
The Euro held a firm tone in early Europe on Monday with increased overall confidence in the EU vaccination programme which provided net currency support.
The New York Empire manufacturing index edged lower to 24.3 for May from 26.3 the previous month, but slightly above consensus forecasts of 24.0. The new orders index strengthened at a slightly faster pace on the month with investors also increasing at a faster pace. There was a slight slowdown in the rate of employment growth while prices increased at a faster rate. The prices paid and prices received indices both hit record high for the month and companies expected only a slight moderation in upward pressure on a 6-month view. The data continued to fuel market inflation expectations.
Fed vice-chair Clarida stated that the central bank must be attuned and responsive to incoming results to guarantee that inflation is transitory and that the Fed would act if the data threatens to put inflation expectations higher. He added that the economy is in a very fluid area, maintaining underlying market uncertainty.
The overall rhetoric from Clarida continued to suggest a slight shift with the Fed potentially laying the groundwork for a policy shift later this year.
Atlanta Fed President Bostic stated that prices will increase as a function of pent-up demand and that he will be watching to assess how quickly the economy improves.
Dallas head Kaplan maintained a bullish outlook on the US economy and reiterated that the first interest rate hike could take place in 2022.
The dollar overall was unable to gain sustained backing given expectations that real interest rates would remain very negative and dipped again later in New York with the Euro settling above 1.2150. Commodity currencies posted further gains on Tuesday and the US dollar remained under pressure with the Euro around 1.2170.
After gaining ground ahead of the New York open, Treasuries lost ground with US yields edging higher from lows near 1.60% to 1.63%. The dollar did find support above the 109.00 level and consolidated around 109.15 at the European close.
The NAHB housing index was unchanged at 83 on the month with further evidence of strength in interest-rate sensitive areas.
US equities pared losses late in New York, but the dollar was held close to 109.20 amid wider losses and negative underlying sentiment.
Japanese GDP declined 1.3% for the first quarter of 2021 compared with consensus forecasts for a 1.1% decline as consumer and business spending remained under pressure. For fiscal 2020/21, there was a GDP decline of 4.6%, the sharpest decline on record. The overall impact was limited with yen support sapped by ongoing coronavirus concerns while US equity futures posted gains. Both currencies remained out of favour with the dollar settling around 109.15 in early Europe on Tuesday.
Sterling was held in relatively narrow ranges on Monday. The further relaxation of coronavirus restrictions underpinned Sterling sentiment, although there were still reservations over the impact of the Indian variant which could disrupt plans for the easing measures planned in June. Overall risk appetite also held steady with markets continuing to monitor global inflation developments. UK equities found solid support on dips which provided an element of currency support.
Bank of England external MPC member Vlieghe stated that this year’s growth should be considered a return to normalcy rather than a boom. Although bottlenecks and base effects would push inflation above target in the short term, he stated that surplus capital may build up quickly if the economy does not grow rapidly.
Sterling advanced to highs near 1.4150 against the US dollar while the Euro settled close to 0.8600, maintaining the narrow trading range seen over the past week.
Sterling was able to post net gains on Tuesday amid a solid risk appetite with no major impact from domestic coronavirus reservations.
UK labour-market data was stronger than expected with unemployment held at 4.8% from 4.9% previously while there was a net decline in the claimant count. Sterling maintained a firm overall tone with 12-week highs near 1.4180 against the dollar while the Euro edged lower to 0.8585.
Swiss sight deposits increased to CHF707bn from CHF705bn previously which was a slower increase than seen for the previous week but also suggested that the National Bank may have been intervening to restrain the Swiss currency and prevent a break of important technical areas..
The Euro initially struggled to make any headway, but there was net franc selling later in the session and the Euro strengthened to 1.0970 while the dollar found tentative support close to 0.9000. The franc was unable to gain support from gains in precious metals and the dollar settled around 0.9020.