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The French PMI business confidence data was stronger than expected with the services-sector index strengthening to 56.6 for May from 50.3 previously while the manufacturing index was close to record highs. German data was mixed as the non-manufacturing index strengthened to 52.8 for the month from 49.9 previously, but the manufacturing release was slightly below expectations at 64.0 from 66.2 in April. The Euro-zone overall manufacturing index was marginally lower at 62.8 from 62.9 in April, but just above consensus forecasts while there was a notable improvement in the services sector to 55.1 from 50.5 which comfortably beat market expectations. Markets had priced in a stronger Euro-zone outlook which limited the scope for further Euro buying.

The dollar remained vulnerable and the Euro held above the 1.2200 level, although the single currency was unable to generate further momentum.

ECB President Lagarde stated that the bank would look through a short-term increase in inflation and the bank is committed to maintaining favourable financing conditions. In this context, she noted that it was too early to discuss winding down asset purchases which hampered the Euro to some extent.

The US PMI manufacturing index strengthened to a record high of 61.5 for May from 60.5 previously and above consensus forecasts of 60.2. There was also a surge in the services-sector index to a record high of 70.1 from 64.7 and above expectations of 64.5. There was a strong increase in new orders, although business optimism retreated to a 7-month low.  Costs and prices increased at a record rate for the month with manufacturing costs also increasing at the fastest rate since July 2008.

The dollar strengthened after the data with the Euro dipping below the 1.2200 level to lows around 1.2160.

CFTC data recorded a further increase in long Euro positions to 100,000 for the latest week, maintaining the risk of a fresh relapse for the currency. Narrow ranges prevailed on Monday with holidays in several Euro-zone countries and the Euro edged higher to around 1.2190 as the dollar was unable to secure sustained support.




US Treasuries dipped after the stronger than expected US PMI data on Friday and US yields recovered from lows near 1.61%, although yields were still little changed on the day. The US currency posted net gains to 108.90 and markets will continue to monitor the commentary closely for any hints of a shift in underlying policy. The US Administration announced that it cut the US infrastructure spending bill to $1.7trn from $2.25trn, but Republicans remained opposed to the plans.

CFTC data recorded an increase in short yen positions to 51,000 contracts in the latest week from 42,000 previously, increasing the potential for position liquidation.

There was further uncertainty whether Japan’s state of emergency would be extended beyond the end of May. Neither the dollar nor yen were able to secure strong support in Asia on Monday with the dollar edging lower to around 108.75 in early Europe and the Euro holding around 132.50.




According to the flash reading, the UK PMI manufacturing index strengthened to 66.1 for May from 60.9 previously, above expectations of 60.7 and the highest reading on record. The services sector index strengthened to a 91-month high of 61.8 from 61.0 in April, although this was slightly below market expectations. Orders increased at the fastest pace on record, but there were further notable difficulties on supply chains with a substantial increase in delivery times.

Business expectations remained strong while costs increased at the fastest rate since August 2008. 

Sterling advanced after the data with a decisive move above 1.4200 against the dollar while the Euro dipped to near 0.8585. There was, however, a dip below 1.4200 after Wall Street open as the US currency regained ground and retreated to just below 1.4150 while the Euro settled just above 0.8600.

CFTC data recorded a small decline in long Sterling positions in the latest week which suggested little enthusiasm for engaging in aggressive Sterling buying. The UK currency was unable to make headway on Monday and traded just above 1.4150 against the dollar while the Euro held just above 0.8600.




The Swiss currency was resilient during Friday with the Euro retreating to lows near 1.0950. The US dollar posted net gains, although there was resistance close to 0.9000 and it closed below this level. The franc gained an element of support from upward pressure on costs and prices in the global PMI data

National Bank Chair Jordan stated that the Swiss currency is still highly valued which suggests that the central bank will continue to resist appreciation. The franc held firm on Monday with speculation that fiat currencies would remain vulnerable providing net support. The Euro was around 1.0940 and the dollar held around 0.8980.



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