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The German IFO index strengthened to a 3-month high of 93.0 for May from a revised 91.9 the previous month and comfortably above consensus forecasts of 91.4. The IFO stated the economy is showing resilience and that there is no sign of recession. The services-sector was more confident, although the industrial situation was more difficult.  Inflation expectations eased slightly but, according to the IFO, this was more due to subdued demand rather than easing of supply-side stresses.

In comments on Monday, ECB President Lagarde stated that the bank was likely to be in a position to exit negative interest rates by the end of the third quarter. She also warned that the pace and scale of monetary policy adjustment could not be determined in advance and the situation is complicated by the presence of negative supply shocks. The overall rhetoric was, however, more hawkish given the hints of two rate increases during the third quarter and the Euro secured further buying support. There were, however, also reports that some members wanted a faster rate of rate hikes. Bundesbank head Nagel focussed on the labour market and stated that it seemed to be clear that wage moderation seen for 10 years in Germany had now ended, reinforcing expectations of higher underlying inflation.

The Euro strengthened to 1-month highs just below 1.0700 against the dollar into the European close with firm risk conditions sapping US currency support.

ECB council member Villeroy stated that a rate hike in the near term is probably a done deal and that the main problem is inflation while euro growth is resilient.

Weaker risk conditions triggered limited dollar gains on Tuesday, but the Euro was resilient and held around 1.0670.




The Chicago Fed national activity index strengthened slightly to 0.47 for April from a revised 0.36 in March. Treasuries edged higher in early New York, but were unable to hold the gains and lost ground with the 10-year yield increasing to near 2.85%.

The dollar was held in relatively narrow ranges and traded around 127.90 at the European close as Wall Street gains limited potential yen support to some extent.

Kansas City Fed President George stated that inflation is clearly decelerating, but could jump again and reducing inflation is the top priority. She added that she expected interest rates to be around 2.0% by August. San Francisco’s Daly stated that the US economy had plenty of momentum and does not expect recession.

Japan’s PMI manufacturing index edged lower to 53.2 for May from 53.5 and the lowest reading for three months while the services index recovered to 51.7 from 50.7 in April and the highest level for five months amid an on-going recovery from coronavirus restrictions. There were still expectations of a very expansionary Bank of Japan policy which limited yen support. Risk appetite was more vulnerable on Tuesday amid renewed concerns over the US outlook and equity futures lost ground.

The yen secured a renewed element of defensive support, especially with reservations over the Chinese growth outlook and the dollar traded around 127.60.




Sterling continued to post gains after the European open on Monday with further support from the break above 1.2500 against the dollar. Risk-sensitive currencies were also able to secure a further recovery as equity markets posted gains and this was an important element underpinning short-term Pound support. Sterling peaked close to 1.2600 against the dollar with further evidence of short covering before fading slightly.

Bank of England Governor Bailey stated that the UK has a very tight labour market, but that does not mean that the UK looks like a story about rapid demand growth and he retreated that the economy is facing a very big negative impact on real income. According to Bailey, the bank is ready for more interest rate hikes if needed. There were still reservations whether the UK would be able to tighten policy significantly further and rate hikes from here are liable to lag behind the US and Euro-zone.

Sterling held a firm tone with significant support from gains in equity markets, but there was resistance close to 1.2600 while the Euro found support below 0.8450 and rallied to the 0.8500 area. Risk appetite was less confident on Tuesday and Sterling edged lower to the 1.2560 area against the dollar.




Swiss total sight deposits increased to CHF754.1bn in the latest week from CHF753.3bn the previous week which suggested that the National Bank had not been intervening aggressively to restrain the franc in the latest week. National Bank member Maechler stated that the central bank would not hesitate to increase interest rates if inflation remains outside the target. The Euro was able to post a limited net advance to 1.0330 amid the hawkish ECB rhetoric.

The dollar retreated again to lows around 0.9630 and the franc held firm on Tuesday with the dollar around 0.9660 as markets monitored risk conditions.


Technical Levels 




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