EUR / USD
The Euro-Zone industrial sentiment index strengthened to 11.5 for May from 10.9 the previous month while the services-sector index surged to 11.3 from 2.2 in April with the overall business and consumer survey strengthening to a record high. The data maintained overall expectations of a strong recovery which underpinned the Euro.
The US core PCE prices index increased 0.7% for April after a 0.4% increase the previous month and above consensus forecasts of 0.6%. The year-on-year rate strengthened sharply to 3.1% from 1.9% and above expectations of 2.9%. This was the highest annual increase since August 1992.
The Chicago PMI index strengthened to 75.2 from 72.1 previously, well above consensus forecasts and the strongest reading since May 1973.
The dollar posted gains following the higher than expected inflation reading, but the Euro recovered ground into the London fix amid some evidence of month-end buying. Overall, the Euro settled just below the 1.2200 level at the New York close as underlying US currency sentiment remained negative.
CFTC data recorded a small net increase in long speculative Euro positions for the week with the overall short dollar position at the highest level since February, maintaining the potential for short covering if there was a shift in sentiment, although there was no evidence of a shift at this time.
The dollar was unable to make any headway on Monday and dipped lower into the London fix with the Euro strengthening to the 1.2230 area. Euro sentiment was underpinned by an announcement that Germany would ease coronavirus restrictions due to falling domestic infection rates.
Commentary from Federal Reserve officials will be watched very closely in the short term with the Euro around 1.2225 in early Europe on Tuesday.
The US dollar posted further gains against the Japanese yen in early Europe on Friday and briefly pushed above the 110.00 level for the first time since early April after the US inflation data. There was selling above 110.00 with a quick retreat back below this level with a retreat towards 109.70, although yen sentiment remained weak.
China’s May PMI manufacturing index edged lower to 51.0 from 51.1 the previous month while the non-manufacturing index strengthened slightly to 55.2 from 54.9 in April. Confidence in the yen remained fragile amid further concerns over the near-term outlook. Dollar losses dominated on Monday, however, with a retreat to lows around 109.50 as the US currency was undermined by a lack of yield support.
China announced an increase commercial banks foreign currency reserve ratios for the first time since 20007, maintaining speculation that the bank was looking to curb yuan gains. There were still expectations that underlying yield spreads would underpin the Chinese currency. China’s Caixin PMI index was little changed at 52.0 for May. The dollar overall was unable to make headway and settled close to 109.50 against the yen on Tuesday as both currencies remained out of favour.
Sterling held a firm tone ahead of Friday’s New York open, although it was unable to sustain gains. There was a sharp retreat to lows below 1.4150 against the dollar after the US inflation data before a quick recovery and a fresh test of 1.4200 as the UK currency gained support into the London fix and the Euro settled near the 0.8600.
Markets continued to monitor UK coronavirus developments with further doubts whether the final easing of coronavirus restrictions would go ahead on June 21st.
CFTC data recorded an increase in long, speculative Sterling positions to 31,000 contracts in the latest week from 25,000 previously, the highest level for 11 weeks.
London markets were closed on Monday with Sterling overall unable to make headway, but it re-tested the 1.4200 area against the weaker dollar as overall sentiment held firm. Sterling pushed higher in Asia on Tuesday with further support from merger-related inflows. The currency touched 3-year highs at 1.4250 before retreating slightly with the Euro around 0.8590. Another strong Nationwide reading for house prices underpinned Sterling with Bank of England Deputy Governor also warning that demand could outstrip supply which would increase inflation. Sterling held a strong tone and traded around 1.4220 against the dollar in early Europe.
The Swiss KOF leading indicator strengthened to 143.2 for May from 136.4 previously which was above market expectations and the highest reading on record.
The Euro posted an advance on Monday with net gains to near 1.1000 against the franc before a slight correction while the dollar was unable to hold above the 0.9000 level. National bank member Zurbruegg reiterated that the Swiss franc is still highly valued and welcomed the recent currency weakening.
Markets continued to monitor inflation developments closely with the Euro just below 1.1000 against the franc on Tuesday while the dollar traded just below 0.9000.