EUR / USD
Euro-zone M3 money supply growth slowed to 6.0% in the year to April from 6.3% previously while private-sector loan growth was unchanged at 4.5%.
Bundesbank head Nagel stated that the first rate move should take place in July with more to follow in the second half of the year and he also called for a strong signal at the June meeting. The Euro continued to lose ground ahead of Friday’s New York open but was able to find support close to 1.0700 against the dollar.
The US PCE prices index increased 0.2% for April with the annual rate at 6.3% from 6.6% previously. The core index increased 0.3% on the month with the year-on-year increase slowing to 4.9% from 5.2% with both figures in line with market expectations. The data overall maintained an element of optimism that US inflation pressures were peaking which maintained hopes that very aggressive Fed tightening could be avoided and also helped underpin risk appetite.
Personal income increased 0.4% for the month with a 0.9% increase in spending from a revised 1.4% previously.
There was an element of relief surrounding the inflation data which maintained expectations that the Federal Reserve might be able to avoid more aggressive rate hikes. Equities also moved higher which limited potential defensive dollar support and the Euro recovered some ground to trade around 1.0730 at the New York close.
CFTC data recorded a fresh increase in long, non-commercial Euro position to a 6-week high near 39,000 from just above 20,000 previously. There was also a net decline in long dollar positions amid a limited net shift in market sentiment.
EU talks on an embargo of Russian oil will continue on Monday and the latest German inflation data will be watched closely with the headline rate forecast to increase to a fresh record high of 7.6%. Solid risk conditions undermined the dollar on Monday as it traded at 5-week lows and the Euro posted a net gain to near 1.0760.
US Treasuries posted net gains after the US prices data with the 10-year yield edging lower to just below 2.72%. Lower yields undermined dollar support and, although strong gains in equities limited potential yen demand, the dollar retreated to below the 127.00 level as a wider retreat dominated.
The final University of Michigan consumer confidence index dipped to 58.4 from the flash reading of 59.1 while there was a small decline in the 1-year inflation expectations index to 5.3% from 5.4%. The dollar stabilised just above 127.0 as Wall Street equities continued to advance.
There were further reservations over the Chinese property outlook and further uncertainty over coronavirus developments. Markets, however, took a more positive stance amid a tentative re-opening in Shanghai with the city also announcing plans to boost the economy and overall re-opening is forecast to accelerate from Wednesday. Stabilisation in China would be a crucial element in underpinning confidence in the global outlook.
Bank of Japan Governor Kuroda retreated that powerful monetary policy easing will continue. Overall risk appetite held firm, but the dollar was held around 127.00 with the Euro just above 136.50. Trading conditions are likely to be relatively subdued on Monday with a US market holiday for Memorial Day.
Thursday’s UK fiscal support package from Chancellor Sunak continued to provide an element of support for Sterling, especially given speculation that there could be scope for a more restrictive Bank of England policy stance as fears surrounding the outlook for consider spending ease. Sterling moves were, however, influenced primarily by global risk conditions during Friday. Equites made net gains which helped protect the UK currency and there was support below 1.2600 with an advance to near 1.2650 before consolidating below this level while the Euro retreated to below the 0.8500 level.
CFTC data recorded a renewed net advance in short non-commercial Sterling positions to just above 80,000 in the latest week from just above 79,000 the previous week. This was the largest short position since September 2019, maintaining the potential for short covering if there is a shift in UK sentiment.
Risk conditions were important on Monday with Sterling holding firm just below 1.2650 against the dollar, while the Euro traded just above the 0.8500 level.
The Swiss franc posted net gains on Friday despite solid risk conditions. There was further speculation that the National Bank would either increase interest rates in June or shift to a more hawkish stance. The Euro retreated to lows just below 1.0250 while the dollar retreated to 0.9550.
Solid risk conditions limited potential franc demand on Monday and the latest data on sight deposits will be watched closely to assess whether the National Bank is likely to intervene to weaken the currency. The dollar was unable to secure more than marginal gains to 0.9570 in early Europe.