Dollar hits 8-week highs.

The Philadelphia Fed manufacturing index recovered to –10.4 for May from –31.3 the previous month and stronger than consensus forecasts of –19.8. New orders and shipments also contracted at a slower rate for the month while unfilled orders declined more sharply.

There was also a faster rate of decline in employment and the workweek. Inflation readings were mixed with a slightly faster rate of increases for prices paid while prices received edged lower at a faster rate.

Companies are less optimistic over the outlook while pricing pressure are expected to be stronger.

Initial jobless claims declined to 242,000 in the latest week from 264,000 previously and significantly below consensus forecasts of 254,000 while continuing claims were marginally lower at 1.80mn from 1.81mn previously.

Dallas Fed President Logan stated that the central bank still has work to do to achieve price stability and she is concerned whether inflation is falling fast enough. She recognises the risk of tightening too far or too fast, but added that she considers the data at this time does not support skipping a rate hike at the June meeting. Although the data in coming weeks could show it is appropriate to pause, the evidence is not there yet. Logan is a voting member on the committee this year with fresh speculation that the Fed would increase rates in June.

The dollar edged higher after the US data releases and posted a further advance following the hawkish comments from Logan with the currency index at 8-week highs.

Japan’s core inflation reading increased to 4.1% for April from 3.8% previously and above expectations of 3.4%, maintaining pressure for a Bank of Japan policy shift, although the yen secured only slight relief with USD/JPY at 5-month highs.

Federal Reserve Chair Powell is due to make comments on Friday with participation on a panel discussion. Markets will be focussing on any comments surrounding the potential June policy decision.

The Euro was unable to make any headway on Thursday with a lack of domestic influences. The dollar was supported by higher yields and hawkish Fed rhetoric. EUR/USD dipped below the 1.0800 level which triggered further selling. EUR/USD dipped to 7-week lows at 1.0760 on Friday before a recovery to 1.0780.

Higher US yields continued to undermine the yen. USD/JPY posted 5-month highs just above 138.70 before a correction to below 138.50 as the yuan recovered.

The Swiss franc overall edged lower during the day with some impact from a dip in gold. EUR/CHF edged higher to 0.9750 with net USD/CHF gains to just above 0.9050.

Sterling was dominated by global currency moves with a solid underlying tone. GBP/USD dipped to lows at 1.2400 and was held just above this level on Friday.

Commodity currencies were hurt by a stronger US dollar and higher US yields. AUD/USD retreated to lows near 0.6600 before a recovery to 0.6640 on Friday. USD/CAD secured a net gain to above 1.3500 before trading below this level on Friday.

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