Choppy trading continues, Euro recovers from lows.
In comments on Friday, Minneapolis Fed President Kashkari stated that he could back a further 75 basis-point increase in rates at the July meeting and it might then be prudent to continue with 50 basis-point hikes after the July meeting.
He added that the Fed might need to raise rates beyond what is currently forecasted if inflation drifts higher or the supply side does not improve.
The overall stance continues to be a notable shift from the dovish rhetoric that dominated his rhetoric previously
Over the weekend, Fed Governor Waller stated that he will support a further 75 basis-point rate hike at the July policy meeting if the data comes in as he expects.
Markets expect an aggressive Fed stance on interest rates, but there was a slight decline in longer-term bond yields with hopes that inflation would peak more quickly and that aggressive action now would allow a slightly lower peak in rates.
The 10-year yield traded around 3.23% on Monday.
The Euro has drawn an element of support from a narrowing of Italian-German yield spreads to below 200 basis points as immediate fears surrounding fragmentation in Euro-Zone bond markets eased slightly.
ECB council member Knot stated that several 50 basis-point rate hikes are possible if inflation worsens.
CFTC data recorded a sharp reversal in Euro positioning with a net short position of 6,000 contracts from longs above 50,000 the previous week. This big shift in positioning will limit the potential for further Euro selling.
The dollar posted a strong recovery on Friday with the primary reason for sharp selling after the Federal Reserve policy decision seen as related to position adjustment rather than an underlying shift in sentiment.
The dollar overall failed to regain peak levels seen on Wednesday and lost some ground on Monday as global central banks maintained a hawkish stance.
In comments on Friday, Bank of England chief economist Pill stated that the bank was looking at the persistence of inflationary pressures and price pressures becoming embedded in the economy would be a trigger for more aggressive action. In this context, he noted that the message that it may have to act forcefully is not unconditional.
He also noted that increasing rates too aggressively would not stop short-term inflation pressures, but would add to the risks of an undesirable slowdown in the economy. He also stated that it was up to markets to decide whether the bank was signalling a 50 basis-point rate hike for August.
ECB council member Knot also stated that several 50 basis-point rate hikes are possible if inflation worsens as hawkish rhetoric continued.
US industrial production increased 0.2% for May compared with market expectations of a 0.4% increase, but the April increase was revised up to 1.4% from 1.1%.
Hawkish Fed rhetoric continued to underpin the dollar, but with some speculation that aggressive short-term action would lead to a lower peak.
Euro moves were also correlated to a significant extent with trends in risk appetite. EUR/USD retreated to lows below 1.0450 before a recovery. EUR/USD recovered further to 1.0540 on Monday as the dollar retreated.
Overall yield spreads continued to undermine the yen. USD/JPY strengthened to highs at 135.40 and just below 24-year highs before a limited retreat to 134.90 on Monday.
The Swiss franc posted further net gains after the SNB rate hike, but retreated from intra-day highs. USD/CHF moved above 0.9700 from lows at 0.9620 before settling at 0.9665. EUR/CHF also recovered to 1.0180 from lows near 1.0100.
Sterling was unable to make headway amid an underlying lack of confidence in the outlook. GBP/USD did find support below 1.2200 and traded around 1.2240 on Monday.
Commodity currencies came under strong pressure when the dollar recovered and equities dipped. AUD/USD slumped to lows at 0.6900 before a recovery to 0.6965 on Monday as the US currency retreated. USD/CAD also posted strong gains to highs near 1.3080 before a retreat to near 1.3000 on Monday.
|07:00||EUR German PPI (Y/Y)(MAY)||33.50%|
|07:00||EUR German PPI (M/M)(MAY)||1.40%||2.80%|