German Inflation Hits Post-unification High at 7.9%.

German consumer prices increased 0.9% for May with the annual inflation rate strengthening to a fresh post-unification record high of 7.9% from 7.4% previously and above consensus forecasts of 7.6%.

Inflation has also been equal to or above market expectations for the past 8 months.

The EU data will be released on Tuesday with consensus forecasts for a record high of 7.8%.

Fed Governor Waller stated that inflation is alarmingly high and that he backed raising interest rates by 50 basis points at several meetings and until inflation comes closer to the Fed’s 2% target. He added that the policy rate should be above neutral by year-end.

This rhetoric was more hawkish than the consensus within the central bank.

The dollar dipped lower on Monday as the Euro continued to make headway, but the US currency recovered ground on Tuesday with a less confident tone surrounding risk appetite and renewed unease over developments in the energy sector.

The EU failed to reach a deal on a Russian oil embargo on Monday as Hungarian opposition continued, but there was an overnight breakthrough at the Summit. There will be concessions for Hungary with the EU estimating that oil imports from Russia will decline by close to 90% by the end of 2022. The agreement put further upward pressure on oil prices with Brent hitting 2-month highs above $123.0 p/b.

The latest YouGov survey recorded an increase in UK inflation expectations for the year ahead to 6.1% from 6.0% and equalling the record high while long-term expectations held at 4.2%. The data will maintain pressure for the Bank of England to tighten monetary policy in order to curb inflation expectations.

There is likely to be choppy trading on Tuesday with significant month-end position adjustment, especially around the London fix ahead of the European close.

The US market holiday dampened market activity during Monday. A fresh record high for German inflation-maintained pressure for ECB monetary policy tightening.

The EU agreement on a Russian oil embargo increased reservations over the Euro-zone economic impact. EUR/USD edged higher to a 5-week high at 1.0780 before a retreat to just below 1.0750 on Tuesday.

The yen lost ground amid solid risk appetite and hawkish Fed rhetoric. USD/JPY posted net gains to 127.50 on Monday with a further net advance to near 128.00 on Tuesday.

The Swiss National Bank did not intervene to weaken the franc in the latest week, but the franc edged lower. EUR/CHF moved above the 1.0300 level with USD/CHF recovering to near 0.9600 from lows near 0.9550.

Sterling held steady as equities made limited headway, but underlying support remained weak. GBP/USD failed to hold above 1.2650 with a retreat to near 1.2600 on Tuesday.

Commodity currencies posted net gains but failed to hold intra-day highs. Australian data was weaker than expected, but the Chinese data provided an element of relief. AUD/USD challenged 3-week highs at 0.7200 before settling just below this level. USD/CAD dipped to 5-week lows near 1.2650 before a recovery to 1.2670.

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