Dollar hits 5-week highs.

According to provisional data for May, the University of Michigan consumer confidence index dipped to 57.7 from 63.5 the previous month and significantly below consensus forecasts of 63.0. The current conditions component retreated to 64.5 from 68.2 with the expectations index posting a sharp decline to 53.4 from 60.5.

Both figures were weaker than expected and the overall index was at the lowest level since November 2022. The 1-year inflation expectations index edged lower to 4.5% from 4.6% with the 5-year index at 3.2% from 3.0% previously.

Bank of England chief economist Pill stated that the bank is not intending to give a directional bias on future rate decisions. He added that there may be more work to do to bring inflation down, but the bank is seeing evidence that the economy is moving into a more favourable direction on the inflation outlook.

In this context, he added that the outlook would be different if there is evidence that inflation pressures are easing. At this stage, markets consider that the most likely outcome is for a further interest rate increase at the June meeting.

Over the weekend, ECB Vice-President de Guindos stated that interest rate increases were in their final stretch, but council member Kazimir stated that the bank may continue with rate hikes for longer than expected.

Treasury Secretary Yellen stated that there is still uncertainty when the Treasury will run out of cash but repeated that it could be as early as June 1st. Treasuries overall lost ground and higher yields helped underpin the dollar and there was also demand for dollar liquidity

The dollar maintained a firm tone, especially with global growth doubts and the currency index posted the highest level since the second week of April.

The New York Empire manufacturing index will be released on Monday. There was a strong rebound in the index last month which was not matched by the other regional indices.

This month’s data will, therefore, be watched closely.

The Euro was unable to make headway on Friday and gradually lost ground during the day. The dollar also managed regain territory with an element of defensive demand. EUR/USD dipped to 1-month lows just below 1.0850 before a marginal recovery to 1.0860 on Monday.

The yen was undermined by higher US yields. USD/JPY strengthened to highs around 135.75 on Friday with a further advance to just above 136.00 on Monday.

The franc was dominated by global moves with an element of defensive support. EUR/CHF settled around 0.9750 with net USD/CHF gains to 0.8980.

Sterling was hampered by a decline in commodity currencies and doubts over the global growth outlook. GBP/USD retreated to just below 1.2450 before settling just above this level.

Commodity currencies were subjected to another slide amid doubts over the global outlook. AUD/USD slumped to just below 0.6650 before a tentative recovery to 0.6680 on Monday as Chinese equities recovered. USD/CAD advanced to 1.3565 highs before a retreat to 1.3520 on Monday.

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