US manufacturing remains in recession.
The US ISM manufacturing index declined to 46.3 for March from 47.7 previously which was below expectations of 47.5 and the fifth successive reading in contraction territory below the 50.0 level. New orders contracted at a faster pace on the month. Production also remained in contraction for the month while supply pressures continued to ease. Employment continued to decline on the month and at a faster pace than for the previous month.
As far as inflation is concern, there was a fresh decline in the prices index to 49.2 from 51.3 the previous month.
St Louis Fed President Bullard stated that the market is focussing too much on banking strains and expects inflation to be sticky, especially with a strong labour market.
He also stated that higher oil prices would make inflation fighting more difficult and reiterated that interest rates need to be increased to above 5.00%.
Treasuries posted strong gains after the US manufacturing data with the 10-year yield retreating to near 3.40% and close to March lows.
After posting gains in Asia on Monday, the dollar was unable to hold the advance and steadily lost ground during the day as yields declined. The currency index retreated to 10-day lows before a very slight recovery on Tuesday.
Swiss consumer prices increased 0.2% for March compared with expectations of 0.4% and the year-on-year rate declined more than expected to 2.9% from 3.4% and below consensus forecasts of 3.2%.
The Reserve Bank of Australia held interest rates at 3.60% at the latest policy meeting which was in line with consensus forecasts, although a minority had expected a further increase to 3.85%.
The RBA stated that policy acts with a lag and the full effect of rate hikes is yet to be felt.
It added that some further tightening may be needed, but the bank is on hold for now with less hawkish forward guidance.
The dollar was unable to hold gains on Monday. The US currency was hampered by a fresh decline in yields on the day. There were still expectations of a hawkish ECB stance. EUR/USD hit highs near 1.020 before a retreat back below 1.0900. The dollar struggled to regain ground on Tuesday with EUR/USD just below 1.0900.
The yen gained support from lower US yields. USD/JPY failed to hold 133.50 and posted sharp losses to lows below 132.50. USD/JPY edged higher to 132.80 on Tuesday.
The Swiss franc drifted overall with limited impact from the data or SNB rhetoric. EUR/CHF secured a net advance to 0.9950 with USD/CHF sliding to 0.9110 before a slight recovery to 0.9135.
Sterling was dominated by global asset-price moves. GBP/USD recovered strongly to a peak around 1.2420 as the dollar retreated before settling just above 1.2400.
The Canadian dollar drew further support from the weekend jump in oil prices. USD/CAD retreated steadily to 6-week lows near 1.3410 before settling around 1.3435. AUD/USD advanced strongly to 1-month highs near 0.6790 as equities posted fresh gains. AUD/USD dipped to 0.6760 after the RBA policy statement.
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