Hawkish Fed rhetoric.

The German ZEW economic sentiment index dipped to –10.7 for May from 4.1 previously and below expectations of –5.3. There was also a small decline in the current conditions component to –34.8 from –32.5, although this was slightly stronger than consensus forecasts.

Overall confidence in the Euro-Zone outlook remained weaker.

Headline US retail sales increased 0.4% for April after a revised 0.7% decline the previous month and below expectations of 0.8%. Underlying sales also increased 0.4%, but met market expectations while the control group recorded a 0.7% monthly increase

Cleveland Fed President Mester stated that she doesn’t think the central bank is at a spot to hold rates yet. She added that rates are not restrictive enough and that she is not at a point where it is equally probable that the next move in rates is for an increase or decrease.

The headline Canadian inflation rate increased to 4.4% for April from 4.3% and above consensus forecasts of 4.1%.

The core rate, however, declined to 4.1% from 4.3% with all of the Bank of Canada core readings showing a decline on the month.

Japan’s GDP data was stronger than expected with 0.4% for the first quarter of 2023 and there was also some speculation that the Bank of Japan would adjust policy at the June meeting. Stronger than expected data failed to underpin the yen.

Bank of England Governor Bailey is due to make comments on Wednesday with markets watching any hints on policy closely.

The Euro edged higher ahead of Tuesday’s New York open and EUR/USD briefly moved above the 1.0900 level. Underlying Euro sentiment was still fragile after weaker than expected ZEW data. The dollar gained net support from hawkish Fed rhetoric and higher yields. EUR/USD retreated to lows at 1.0855 and re-tested this area on Wednesday.

Higher US yields undermined the yen. USD/JPY hit highs at 136.70 on Tuesday before a retreat to 136.30. Japan’s GDP data failed to support the yen with USD/JPY advancing to around 136.80.

The Swiss franc was subdued with limited net USD/CHF gains to 0.8970.

Sterling dipped after the UK labour-market data, but recovered later in the session. GBP/USD rebounded to near 1.2550 before retreating back below 1.2500 as the dollar regained ground. GBP/USD retreated to near 1.2450 on Wednesday.

AUD/USD failed to regain 0.6700 as the US dollar secured net gains. Australian wages data was slightly weaker than expected with AUD/USD below 0.6650. The Canadian dollar gained ground after the inflation data. USD/CAD dipped to near 1.3400 before a rebound to 1.3490.

Economic Calendar