Germany recorded a trade deficit.

Germany recorded a trade deficit of EUR1.1bn for May after a EUR3.0bn surplus for April. This was the first deficit since 1991 as exports declined slightly on the month and imports posted a net increase as energy costs remained elevated.

The trade data will maintain concerns over the German outlook and also undermine wider confidence in the Euro-Zone outlook, especially with on-going concerns over gas prices.

The Euro-Zone Sentix economic expectations index dipped further to -26.4 for July from -15.8 previously and well below consensus forecasts of -19.9. There was notable deterioration in Germany and Sentix also noted important distortions from the energy crisis.

Sentix also stated that the Euro-Zone is in the eye of a storm and very difficult conditions would continue in the short term.

Swiss consumer prices increased 0.5% for June, above expectations of 0.3% and the year-on-year rate increased to 3.4% from 2.9%. This was above expectations of 3.2% which was the first reading above 3.0% since 2008 and the highest rate since September 1993.

The higher than expected CPI reading will maintain National Bank concerns over inflation developments and reinforce expectations that monetary policy will be tightened further.

The Bank of Canada outlook survey recorded an increase in inflation expectations with most businesses expecting rates above 3% for the next 2 years.

Businesses expect wage increases of close to 6% over the next 12 months and also expect supply-side difficulties will continue until the end of next year.

The survey reinforced expectations of a larger rate hike at next week’s policy meeting.

The Reserve Bank of Australia (RBA) announced an increase in interest rates of 50 basis points to 1.35% at the latest policy meeting, in line with market expectations.

The RBA statement indicated that interest rates will be increased further in the short term, although it reiterated that it would be data dependent.

The US holiday curbed trading volumes during Monday. Confidence in the Euro-Zone outlook remained weak, especially with Ukraine fears. Expectations of peak US inflation limited potential dollar support. EUR/USD advanced to highs above 1.0450 before a retreat to 1.0420 and settled around 1.0435 on Tuesday.

The yen lost ground against the US currency with USD/JPY securing a net advance to 135.70. Higher US yields triggered a further USD/JPY advance to 136.30 on Tuesday before a slight correction.

The Swiss franc edged lower in tight ranges and USD/CHF settled around 0.9610. An underlying lack of confidence in the UK economy continued to sap Sterling support.

GBP/USD failed to hold above 1.2150 and settled around 1.2115 while GBP/EUR remained choppy around 1.1610.

USD/CAD dipped to 1.2850 as higher inflation expectations in the Bank of Canada survey reinforced expectations of further sharp Bank of Canada rate hikes. AUD/USD failed to hold peak levels on Monday and settled around 0.6860 on Tuesday as the latest RBA rate hike met expectations.

Economic Calendar

08:45Italy - Services PMI(JUN)54.553.7
08:50France - Services PMI(JUN)58.454.4
08:55EUR German PMI Composite(JUN)54.651.3
08:55EUR German PMI Services(JUN)52.4
09:00Euro-Zone PMI Composite(JUL)51.9
09:00Euro-Zone PMI Services(JUL)52.8
09:30GBP PMI Services(JUN)53.4
09:30GBP PMI Composite(JUN 01)53.1
13:30CAD Building Permits (M/M)(MAY)-0.60%
15:00USD Factory Orders(MAY)0.70%0.30%

*All rates shown are indicative of interbank rates and should only be used for indication purposes only. It is important to note that foreign exchange rates fluctuate and that rates may vary depending on the amount and the base currency that is purchased or sold. Rates are correct as of 8:00am UK time. CentralFX are not responsible for the rates shown.