UK inflation data due Wednesday.

The New York Empire manufacturing index recovered very strongly to 10.8 for April from –24.6 the previous month. The release was well above consensus forecasts of –18.0 and the first positive reading for 5 months. There was a surge in new orders for the month with production also posting strong growth, although unfilled orders were unchanged.

Employment continued to decline on the month and the workweek also declined. There was a net easing of cost pressure, but prices received increased at a slightly faster rate.

Companies were only slightly more optimistic over the outlook while inflation pressures are expected to increase slightly.

US yields moved higher after the latest US data with the 2-year yield hitting 4.20% for the first time in over three weeks.

US markets were even more convinced that the Federal Reserve would increase interest rates at the may policy meeting and the dollar posted net gains as yields moved higher.

The dollar index overall posted 1-week highs.

Chinese GDP increased 4.5% in the year to the first quarter after 2.9% previously and above consensus forecasts of 4.0%. There was also much stronger than expected growth in retail sales of 10.6% compared with expectations of 7.3%. Unemployment declined to 5.3%, although the industrial production data was slightly weaker than expected. The data overall helped underpin confidence in the outlook.

The UK labour-market data recorded a slight increase in unemployment, but there was a stronger than expected employment increase.

Importantly, headline annual wages growth held at 5.9% compared with expectations of a decline to 5.1%. Underlying wages growth also held at 6.6%, reinforcing inflation concerns.

The latest Canadian inflation data is due on Tuesday. The headline rate is forecast to decline to 4.3% from 5.2% with the core rate edging lower to 4.4% from 4.7%.

The latest UK inflation data is due on Wednesday. Consensus forecasts for a decline in the headline rate to 9.8% from 10.4% previously. The core rate is forecasts to decline to 6.0% from 6.2%

The Euro was unable to make any headway on Monday with the inability to regain 1.10000 undermining EUR/USD. The dollar was boosted by a further increase in yields. EUR/USD dipped to lows near 1.0900 before stabilising.

Higher US yields also undermined the yen. USD/JPY posted highs just above 134.70 before a limited correction to 134.40.

The Swiss franc was resilient despite another increase in sight deposits. EUR/CHF settled just above 0.9800, USD/CHF recovered to 0.9000 before settling around 0.8980.

Sterling was resilient during Monday with no major domestic influences and GBP/USD found support near 1.2360. Stronger than expected wages data boosted Sterling with GBP/USD close to 1.2400.

Commodity currencies were hampered by the firm US dollar on Monday. AUD/USD dipped to lows near 0.6680 before settling around 0.6700 and edged higher to 0.6725 after the Chinese data. USD/CAD rallied to near 1.3420 before settling around 1.3375.