Markets overall remained confined to very tight ranges on Tuesday ahead of the US inflation data.

Markets overall remained confined to very tight ranges on Tuesday ahead of the US inflation data. US bond yields edged lower on the day with no major data releases. Wall Street equities were little changed with global bourses close to record highs.

The dollar was unable to make headway, but fresh selling was also avoided ahead of the US CPI data. EUR/USD settled below 1.2200 with caution ahead of the ECB meeting. Sterling recovered from intra-day lows with GBP/USD support above 1.4100 as domestic coronavirus developments watched closely. Commodity currencies were slightly lower as China looked to curb price increases.

The German ZEW investor confidence index declined slightly to 79.8 for June from 84.4 previously and below consensus forecasts of 86.0. There was, however, a sharp improvement in the current conditions component to -9.1 from -40.1 previously and well above market expectations. The Euro-zone ZEW expectations index edged higher to 81.3 from 84.0 the previous month. The data overall triggered some disappointment over the outlook, although the impact was limited.

The Euro-zone GDP estimate for the first quarter was revised to -0.3% from the flash reading of -0.6% with a year-on-year decline of 1.3%.

Relatively tight ranges prevailed ahead of the New York open with the dollar unable to make significant headway and EUR/USD below 1.2200.

The US goods trade deficit narrowed to $68.9bn for April from the record $75.0bn the previous month as imports declined on the month.

The JOLTS data reported a sharp increase in job openings to a record high of 9.29mn for April from 8.29mn the previous month which suggested that there was strong underlying demand within the labour market. The data increased speculation that lower than expected employment gains were due to supply issues rather than a lack of demand for labour which could have important implications for inflation. Narrow ranges continued to dominate with EUR/USD settling around 1.2180.

There was further caution ahead of the US consumer prices data and ECB decision on Thursday with markets also waiting for next week’s Federal Reserve policy decision. Overall currency market volatility declined to the lowest level since February 2020. Narrow ranges continued to prevail on Wednesday with EUR/USD still around 1.2180 as markets continued to wait for key events due on Thursday with German trade data slightly weaker than expected.

US bond yields were held at low levels into Tuesday’s New York open which curbed potential dollar support and the 10-year yield dipped below 1.55% around the Wall Street open with USD/JPY held below 109.50.

With no comments from Federal Reserve officials, underlying conditions remained subdued during the day with the yen and dollar both finding only limited support.

There were further talks on US infrastructure plans with some reports from Republicans that a lot of progress had been made.

Chinese CPI inflation data was weaker than expected at 1.3% from 0.9% previously, but there was an increase in the producer prices inflation rate to 9.0% from 6.8% previously and the highest rate since 2008 which maintained some concerns over increased global inflation pressures. There was also further evidence that China was looking to impose price controls on commodities. Narrow ranges prevailed on Wednesday with USD/JPY continuing to trade just below 109.50.

Sterling was unable to make headway in early Europe on Tuesday, although overall selling pressure on the currency was limited as volatility remained low.

Bank of England chief economist Haldane stated that the housing market was on fire, although he also expressed caution over a high degree of uncertainty in the labour market, especially with 3 million people still on furlough. Comments from bank officials will continue to be monitored closely.

Sterling was hampered by underlying concerns over a rapid spread of the Delta coronavirus variant, especially with stronger expectations that there would be a delay to a further easing of restrictions in England on June 21st. The government announced further support and testing for North West England.

There were also some concerns over the trade situation amid further stresses over the Northern Ireland protocol and some speculation that President Biden could warn Prime Minister Johnson and that failure to uphold the agreement could have negative implications for US-UK trade talks.

GBP/USD found support above 1.4100 and settled close to 1.4150 while GBP/EUR dipped to 1.1590 at the lows before bouncing.

Economic Calendar

07:00German Trade Balance(APR)16.3B14.3B
12:00USD MBA Mortgage Applications-4.20%
13:30USD Wholesale Inventories0.80%
15:00CAD BoC Rate Decision0.25%

*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.