GBP/USD posted 11-month highs above 1.2580.

The US PCE prices index increased 0.1% for March compared with consensus forecasts of 0.3% with the annual increase declining sharply to 4.2% from 5.1%. Core prices, however, increased 0.3% on the month with the annual increase slowing only marginally to 4.6% from 4.7% and above market expectations of 4.5%.

The employment cost index increased 1.2% for the first quarter from 1.1% previously with a limited slowdown in the annual increase to 4.8% from 5.1%.

The US ISM manufacturing index edged higher to 47.1 for April from 46.3 previously and slightly above consensus forecasts of 46.8. New orders and production remained in contraction territory while there was a slight increase in employment for the month.

The prices index moved back into expansion territory for the month, reinforcing concerns that inflation pressures could be stubborn.

Markets are even more confident that the Fed will increase interest rates this week with over a 90% chance of a rate hike priced in.

Over the weekend, the FDIC took control of First Republic Bank as deposit outflows continued. The FDIC then held an auction and announced Just after Monday’s European open that the assets had been sold to JP Morgan.

The Chinese manufacturing PMI index dipped back into contraction at 49.2 from 51.9 the previous month. The non-manufacturing index edged lower to 56.4 from 58.2.

The yen has remained under sustained pressure following last week’s Bank of Japan policy decision. The dollar posted 4-month highs against the yen with the Euro at a 15-year high.

The Reserve Bank of Australia increased interest rates by 25 basis points to 3.85% at the latest policy meeting. The consensus in markets was for the bank to remain on hold at the latest meeting.

The forward guidance was conditional, but it stated that further rate hikes may be required.

The Euro lost ground on Friday but managed to regain the 1.1000 level. The dollar secured net gains on Monday after the US data. EUR/USD again dipped below 1.1000 to 1.0965 before trading just below 1.1000 on Tuesday. Higher US yields underpinned the dollar and the yen remained under sustained pressure.

USD/JPY surged to 4-month highs just above 137.70. EUR/JPY jumped to 15-year highs above 151.00.

The Swiss franc was resilient despite higher US yields. EUR/CHF settled around 0.9840 with USD/CHF just above 0.8950.

Sterling posted strong gains on Friday with month-end position adjustment helping. GBP/USD posted 11-month highs above 1.2580. GBP/USD dipped below 1.2500 on Monday before settling close to this level.

The Australian dollar posted net gains with AUD/USD highs near 0.6670 before a retreat to 0.6630. The surprise RBA decision triggered an AUD/USD surge to 10-day highs just above 0.6700. USD/CAD settled just below 1.3550.

Economic Calendar

15:00JOLTS Job Openings9.74M9.93M

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