EUR / USD
The Euro was able to secure a net advance in early trading on Monday. ECB council member Villeroy stated that monetary policy expects an active summer and a decisive June meeting. He added that the pace of future developments will depend on actual activity and inflation, but there should be a move at least towards the neutral rate. He added that a Euro is too weak would go against the price stability objective. He added that the bank will carefully monitor developments in the effective exchange rate as a significant driver of imported inflation. This is potentially important given that central bank has not referred to Euro weakness previously and suggests that recent losses are causing concern. The Euro edged higher to near 1.0440 before stalling with underlying sentiment still vulnerable.
Sweden joined Finland in announcing that it would formally apply for NATO membership which will maintain unease over the risk of more hawkish rhetoric from Russia.
The New York Empire manufacturing index dipped very sharply to -11.6 for May from 24.6 the previous month and substantially below consensus forecasts of 16. There was also a slump in the new orders and production components into negative territory for the month and unfilled orders increased only marginally.
The employment index was slightly stronger on the month while there was a slight easing in inflation pressures with prices increasing at a slower rate.
Despite a slide in current conditions, companies were slightly more optimistic over the outlook with inflation pressures set to ease slightly.
The dollar dipped lower in an immediate response, although risk appetite tended to dip again after the New York open and the Euro edged lower with a move towards 1.0400. There was support on approach to this level and the Euro advanced to around 1.0450 on Tuesday as risk appetite remained on a slightly stronger footing.
The dollar was able to make headway in early Europe on Monday and advanced to highs near 129.60. The dollar retreated slightly after the New York manufacturing survey. New York Fed President Williams stated that the Fed needs to get real rates back to zero and that 50 basis-point rate hikes make sense. He did, however, add that there has already been a tightening of financial conditions larger than seen in 1994, illustrating that the Fed remains sensitive to moves in equities.
US Treasuries posted net gains and the 10-year yield retreated to around 2.87% at the European close with the dollar drifting above the 129.0 level.
There were slightly more positive developments surrounding coronavirus in Shanghai, although there were still important reservations surrounding the economy as a whole with the NDRC state planner commenting that the economy faces increasing downwards pressure.
Overall risk appetite held steady in Asian trading on Tuesday with the dollar edging higher towards 129.50 and the Euro just above 135.00.
Sterling lost ground in early Europe on Monday with significant selling against the Euro. There was, however, support above the 1.2200 level against the dollar and there was a firmer tone later in the day. Bank of England Governor Bailey stated that the central bank faced its biggest challenge for 25 years and that rising food prices were a major concern while the current high inflation level was a bad position to be in. External MPC member Saunders retreated that he believed there should be a quicker move to a neutral monetary policy stance. Although there was a further decline in money-market pricing Sterling posted net gains later in the day. There was a recovery to 1.2275 at the European close while the Euro failed to hold the advance to 0.8535 and retreated back to below 0.8500.
Brexit concerns eased slightly on Tuesday which eased potential Sterling selling and it edged towards 1.2350 against the dollar as risk appetite held steady with the Euro slightly lower. UK labour-market data was stronger than expected with lower unemployment and headline earnings surged 7.0% in the year to April compared with expectations of 5.4%. A tight labour market will increase scope for further rate hikes and Sterling edged above 1.2350 with the Euro at 10-day lows near 0.8460. The latest CPI inflation data will be released on Wednesday with expectations that the headline rate will increase to above 9% with volatile Sterling trading likely.
Total Swiss sight deposits increased to CHF753.5bn for the latest week from CHF750.9bn previously and, allow the rate of increase was slightly slower than the previous week, the data suggested that the National Bank had sustained intervention to curb franc buying.
The Euro posted net gains to just below 1.0500 before a retreat to near 1.0450 while the dollar secured a net advance to just above 1.0050 after fresh 26-month highs around 1.0065. The franc resisted further selling on Tuesday with the dollar retreating to around 1.0010 amid a wider US retreat.