Euro-zone inflation at fresh record high.

The US ISM manufacturing index retreated to 55.4 for April from 57.1 in March which was significantly below consensus forecasts of 57.6 and the lowest reading since October 2020. There was a small net slowdown in the rate of growth in orders and production while employment growth slowed sharply with only slight gains in jobs.

Order backlogs increased at a slower rate on the month and there was a slight easing in cost pressures with the prices index edging lower to 84.6 from 87.1 in March.

US bond yields test 3.0%

Although the US ISM data was weaker than expected, there were further losses in US Treasuries on Monday.

The 10-year yield advanced to touch 3.00% and the highest level since December 2018 as markets fretted over underlying inflation pressures.

The dollar has maintained a strong overall tone in global markets amid expectations of aggressive Fed tightening.

Despite pressure for a correction, the dollar index remained close to a 20-year high.

Following the latest policy meeting, the Reserve Bank of Australia (RBA) increased interest rates 25 basis points to 0.35%. Consensus forecasts were for a smaller RBA increase to 0.25%.

The bank noted that inflation had increased more than expected and a further increase is expected in the short term, although it still expected that there would be moderation over the medium term.

The Australian dollar spiked higher following the decision, but retreated from highs.

The headline Euro-zone CPI inflation rate increased to a record high of 7.5% for April from 7.4% previously and in line with consensus forecasts, while the underlying rate increased more than expected to a series-high of 3.5% from 2.9% in March.

Comments from ECB officials will continue to be watched closely.

China’s manufacturing PMI index dipped to 47.4 for April from 49.5 previously and slightly below forecasts while there was a much steeper retreat in the non-manufacturing index to 41.9 from 48.4 and compared with market expectations of 46.0.

The data maintained concerns over the Chinese economic outlook and also hampered risk appetite.

Overall concerns surrounding escalation in the Ukraine conflict have remained an important market element.

Markets remain nervous ahead of the Russian victory day on May 9th with strong pressure for President Putin to be able to demonstrate some clear victory by that date. The EU has also not been able to reach consensus on banning oil imports from Russia.

Underlying confidence in the Euro-zone outlook remains fragile. There was, however, a small net increase in money-market expectations for short-term Euro rates which provided some protection.

The Euro overall has also attempted to correct after sharp losses. Fed tightening expectations have continued to underpin the dollar. EUR/USD traded just above the 1.0500 level on Tuesday.

The US 10-year yield increased to near 3.0%, the highest level since December 2018. Weaker risk appetite provided some yen protection. USD/JPY traded just above the 130.00 level. Higher global yields tended to lessen Swiss franc support. USD/CHF hit highs just below 0.9800.

Sterling remained vulnerable with only a limited correction from sharp losses and selling interest on rallies. GBP/USD hit selling interest on rallies and traded marginally above 1.2500 on Tuesday. GBP/EUR settled just around the 1.1900 level.

Commodity currencies remained under pressure given a strong dollar weak risk appetite and unease over the Chinese outlook. The Australian dollar, however, spiked higher after the Reserve bank rate hike. AUD/USD hit highs near 0.7150 before fading to around 0.7115. USD/CAD peaked close to 1.2900 before a retreat to 1.2860.

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