ECB President Lagarde reiterated that the bank intends to increase rates.

In comments on Monday, ECB President Lagarde reiterated that the bank intends to increase rates by 25 basis points at the July meeting. She added that price rises are becoming more widespread across sectors and measures of underlying inflation have risen further. She also noted that the bank expects to raise rates again in September.

St Louis Fed President Bullard stated that the economy is slowing to the trend rate of growth as expected due to Fed actions. He added that the central bank must follow through and validate prior forward guidance as there would be the risk of inflation expectations becoming un-anchored if there was no action. 

He did, however, consider that there may not be that far to go on quantitative tightening through bond sales.

Markets will be waiting for Fed Chair Powell’s testimony to Congress on Wednesday with his rhetoric and guidance having an important impact on rate expectations and moves across asset classes.

Market consolidation was the dominant theme on Monday, especially with a US market holiday.

Bank of England MPC member Mann stated that there signs that inflation in the UK is becoming more embedded and persistent and also had more momentum after government support measures for households. She called for more aggressive tightening, especially as that would reduce the risk that domestic inflation is further boosted by inflation imported via Sterling depreciation.

She was, however, also concerned that there is an increasingly stark trade-off in terms of persistent inflation against deteriorating real income. From a medium-term view, there was the possibility of a rate reversal when domestic supports to demand fade.

Reserve Bank of Australia Governor Lowe stated that the bank will discuss a 25 or 50 basis-point rate hike at the early-July policy meeting.

He did add that it was unlikely that market expectations of rates reaching 4% by the end of this year would be realised.

ECB comments had only a limited impact given that July and September rate hikes are priced in. Trading ranges were dampened by the US market holiday.

The dollar was hampered by hopes for an earlier Fed rate peak. Increased US recession talk also limited potential dollar support. EUR/USD edged higher, but with little headway and settled little changed around 1.0520. USD/JPY consolidated just above 105.00 with verbal intervention having little impact.

The Swiss National Bank rate hike last week continued to underpin the franc. USD/CHF settled around 0.9670 with EUR/CHF around 1.0170.

Steady risk appetite and hawkish rhetoric from BoE’s Mann helped provide an element of Sterling protection. GBP/USD settled just above 1.2250 while EUR/GBP retreated to near 0.8580.

Commodity currencies were able to make tentative headway as risk appetite stabilised. RBA’s Lowe’s comments had only limited impact given hawkish market pricing. AUD/USD was unable to break above 0.7000 and settled around 0.6955 on Tuesday. USD/CAD edged lower to 1.2985 as narrow ranges prevailed with a further limited retreat to 1.2950 on Tuesday.

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