EUR / USD
ECB chief economist Lane stated that prices increases due to bottlenecks are not real inflation and that the central bank still has a lot to do to raise inflation. The dovish rhetoric continued to have only a limited impact on the Euro as yields held firm with consolidation ahead of the New York open.
US initial jobless claims declined to 444,000 in the latest week from a revised 478,000 previously and slightly below consensus forecasts of 450,000 while continuing claims increased to 3.75mn in the week from 3.64mn previously. The data indicated a gradual improvement in the labour market.
The Philadelphia Fed manufacturing index declined to 31.5 for May from 50.2 previously and below consensus forecasts of 43.0. There was also a slight slowdown in the rate of new orders and shipments growth. There was a solid increase in the number of employees while the workweek increased strongly.
There was a further increase in the prices paid index to the highest level since March 1980 while prices received also increased at a faster rate with the highest reading since May 1981. Companies were slightly less optimistic over the 6-month outlook and expect that prices will increase at a faster rate than inflation.
Despite elevated inflation readings, the data had only a limited market impact in currency markets. After regaining some ground on Wednesday following the Fed minutes, the US currency lost ground with expectations that the Federal Reserve will maintain a very dovish stance in the short term.
Overall, the dollar continued to drift lower amid a lack of yield support with the Euro continuing to creep higher. The US currency was unable to regain territory on Friday and the Euro edged higher towards 1.2250 ahead of important Euro-zone PMI business confidence data due just after the European open.
US Treasuries were little changed into the New York open and there was only a limited reaction to the economic data releases, although the Philly Fed prices data maintained underlying expectations over higher inflation rates. The dollar was unable to make any headway and a dip back below 109.00 triggered fresh selling.
Equities posted net gains, but there was a fresh decline in US bond yields which sapped US currency support and the dollar was close to 108.80 at the European close.
Dallas Fed President Kaplan reiterated his call that it would be wise to take the foot gently off the accelerator in order to mage the economic transition more effectively, but market reaction was limited with expectations that a majority of the open market committee would favour a dovish stance.
The Chinese central bank stated that it was not tightening policy and would continue to maintain continuity and stability in policy. Confidence in the Japanese outlook remained fragile with a decline in the PMI manufacturing index to 52.5 for May from 53.6 previously and underlying yen sentiment remained weak. Overall risk conditions held steady, although the dollar was unable to make headway and traded close to 108.80 in early Europe on Friday with the Euro around 133.0.
The CBI industrial trends orders index strengthened to 17 for May from -8 previously and well above consensus forecasts of zero. This was also the first positive reading for over two years and the strongest reading since December 2017. Output strengthened, although exports orders remained subdued. Bank of England Deputy Governor Cunliffe commented that house-price strength during the recession is striking, but the sector is expected to cool as government support is withdrawn.
Sterling sentiment held steady into the New York open and the UK currency edged higher into the European close. Risk conditions stabilised and concerns over the Indian variant eased slightly which limited the scope for selling. The UK currency moved above 1.4150 against the dollar and the Euro settled close to 0.8620.
UK consumer confidence improved further to a 14-month high of -9 for May from -15 previously. April retail sales volumes surged 9.2% compared with consensus forecasts of 4.5% with a year-on-year increase of 42.4% given the slump last year. Sterling held firm to trade fractionally below 1.4200 against the dollar after the data with the Euro around 0.8620 with the UK currency also able to advance against commodity currencies as overall UK sentiment held firm.
The Swiss currency was able to resist further selling pressure on Thursday with a scaling back of short positions as the Euro was unable to hold above the 1.1000 level. The dollar lost ground once again and retreated back below the 0.9000 level.
Markets were continuing to monitor global inflation developments during the day while there were further choppy conditions in precious metals and big moves in cryptocurrencies. The Euro failed to regain ground on Friday and traded around 1.0970 while the dollar edged lower to 0.8965.