Euro-Zone economic confidence dips.
The Sentix Euro-Zone consumer confidence index sipped to –17.0 for June from –13.1 previously and weaker than expectations of –15.2. According to Sentix, the main difficulties are in Germany which is dragging the Euro-Zone economy down.
The ISM non-manufacturing index retreated to a 5-month low of 50.3 for May from 51.9 previously and below consensus forecasts of 52.5. There was a limited slowdown in new orders growth and steeper slowdown in new orders while order backlogs contracted at a faster rate.
There was a small decline in employment on the month while prices increased at a slower rate on the month. The prices index retreated to 56.2 from 59.6 previously and the lowest reading since June 2020.
According to the ISM, the headline figure would be equivalent to GDP growth of around 0.2%.
Fed expectations edge lower.
Following the US data, markets cut the chances of a June rate hike to below 20%.
The chances of a July hike held above 60%.
ECB President Lagarde stated that there was no clear evidence that underlying inflation has peaked while wage pressures have strengthened further.
Bundesbank head Nagel stated that several more rate hikes are necessary.
The dollar retreated after the weaker than expected US data and hawkish ECB rhetoric with the currency index close to the middle of the range that has prevailed over the past two weeks.
The Reserve Bank of Australia (RBA) has surprised markets for the second successive meeting with a further interest rate hike of 25 basis points to 4.10%.
The RBA again warned that inflation was too high and it will take some time before it is back in the target range, although it has peaked.
The RBS also pointed out that wages growth had picked up. The bank again warned that rates may have to increase further.
The Euro continued to lose ground after Monday’s European open with further reservations over the outlook. EUR/USD retreated to lows at 1.0675. The dollar lost ground after the ISM data with EUR/USD back above 1.0700. Hawkish ECB rhetoric also underpinned the Euro with EUR/USD around 1.0730 on Tuesday.
Lower US yields helped triggered a yen recovery. From highs at 140.45, USD/JPY slipped sharply to lows at 139.25. USD/JPY settled around 139.40 on Tuesday.
The Swiss franc posted net gains despite weaker than expected inflation data. EUR/CHF retreated to 0.9710 with USD/CHF dipping to 0.9050.
Sterling was unable to make any significant impression, but with buying on dips. GBP/USD dipped to 1.2370 before a recovery to 1.2435 as the dollar slipped and edged higher to near 1.2450 on Tuesday.
Commodity currencies recovered as the US dollar slipped. AUD/USD secured a net advance to 0.6625 on Monday and jumped to highs around 0.6680 after the RBA policy decision. USD/CAD edged lower to near 1.3400 ahead of Wednesday’s Bank of Canada policy decision.