ECB voices Euro concerns.

The New York Empire manufacturing index dipped very sharply to -11.6 for May from 24.6 the previous month and substantially below consensus forecasts of 16.  There was also a slump in the new orders and production components into negative territory for the month and unfilled orders increased only marginally.

The employment index was slightly stronger on the month while there was a slight easing in inflation pressures with prices increasing at a slower rate.

Despite a slide in current conditions, companies were slightly more optimistic over the outlook with inflation pressures set to ease slightly.

The EU Commission lowered its 2022 GDP growth forecasts to 2.7% from 4.0% previously with 2023 growth expected at 2.3%.

Inflation is forecast at 6.1% this year before a retreat to 2.7% next year.

ECB council member Villeroy stated that monetary policy expects an active summer and a decisive June meeting. He added that the pace of future developments will depend on actual activity and inflation, but there should be a move at least towards the neutral rate.

He added that a Euro is too weak would go against the price stability objective. He added that the bank will carefully monitor developments in the effective exchange rate as a significant driver of imported inflation. This is potentially important given that central bank has not referred to Euro weakness previously and suggests that recent losses are causing concern.

Choppy trading continued on Wall Street during Monday, and main indices posted limited net losses.

Overall sentiment was, however, able to maintain a slightly firmer tone which helped underpin risk assets.

Federal Reserve chair Powell is due to speak on Tuesday with comments on inflation trends and Federal Reserve policies watched closely.

Powell’s overall tone will be important for risk conditions.

Bank of England Governor Bailey stated that the central bank faced its biggest challenge for 25 years and that rising food prices were a major concern while the current high inflation level was a bad position to be in.

External MPC member Saunders retreated that he believed there should be a quicker move to a neutral monetary policy stance.

The headline UK unemployment rate declined to 3.7% in the three months to march from 3.8% and there was a larger than expected increase in employment.

Most attention is likely to focus on the wages data with headline earnings increasing 7.0% in the year to March from 5.4% previously.

Although slightly outdated, the data will maintain expectations of a tight labour market, increasing the potential for further Bank of England rates hikes.

The hawkish ECB rhetoric provided an element of support for the Euro. Overall yield spreads were still significant in sapping underlying support. EUR/USD did find some support near 1.0400 and recovered slightly as risk appetite recovered.

A steadier tone on Wall Street curbed potential defensive dollar demand. Lower yields also stifled dollar support to some extent. USD/JPY drifted lower from intra-day highs on Monday but held firm around 129.30 on Tuesday.

The Swiss franc pared losses with a USD/CHF retreat from 26-month highs but held above parity.

Sterling recovered from early losses as firmer risk appetite helped underpin confidence with stronger labour-market data also providing support. GBP/USD advanced to around 1.2350 as short covering kicked in. GBP/EUR continued to recover from lows around 1.1600.

Commodity currencies rallied strongly late in the day and held a firm tone on Tuesday. Reserve Bank of Australia minutes stated that the bank considered a larger 40 basis-point increase in rates. AUD/USD pushed towards 0.6975 on Monday and attempted to break and hold above 0.7000 on Tuesday. USD/CAD dipped sharply to near 1.2820 with Canadian dollar support from stronger oil prices.

Economic Calendar

07:00GBP Average Earning Including Bonus(MAR)5.40%5.40%
07:00GBP Claimant Count Change(M/M)(APR)-46.9K
07:00GBP Unemployment Rate(MAR)3.80%3.80%
09:00Italy - CPI (M/M)(APR)1.20%0.20%
10:00Italy - CPI (Y/Y)(APR)6.70%6.20%
10:00Euro-Zone GDP (Y/Y)5.00%5.00%
10:00Euro-Zone GDP (Q/Q)0.20%0.20%
13:30USD Core Retail Sales (M/M)(APR)1.00%1.10%
13:30CAD Foreign Securities Purchase(MAR)7.44B
14:15USD Industrial Production(APR)0.90%
14:15USD Industrial Production (Y/Y)(FEB 15)5.47%
15:00USD Business Inventories(APR)1.30%1.50%
23:45NZD PPI Input (Q/Q)1.1

*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.