Euro-Zone inflation hits fresh record high.

The headline Euro-Zone CPI inflation rate increased to 8.6% for June from 8.1% the previous month which was slightly above consensus forecasts of 8.5% and a fresh record high.

The underlying rate edged lower to 3.7% from 3.8% and slightly below market expectations of 3.9%.

The US ISM manufacturing index declined to 53.0 for June from 56.1 for May and below consensus forecasts of 54.5. There was slightly faster growth in production, but the new orders component dipped into contraction.

Manufacturing employment declined for the second successive month while there was a limited net easing of cost pressures with the prices index retreating to a 4-month low.

There was an initial surge in bonds after the US ISM data with the 10-year yield dipping to 2.80%. Sellers then came out in force with yields moving back to the 2.90% area before settling just below 2.90% on Monday.

The 2-year yield also dipped to lows below 2.80% before partial reversal.

The dollar was subjected to choppy trading after Friday’s US ISM data with yields and risk appetite having an important impact.

Lower yields proved decisive with the dollar reversing the advance to 2-week highs and traded slightly lower on the day.

US markets will be closed on Monday for the Independence Day holiday which will tend to dampen activity in global markets.

The Reserve Bank of Australian will announce its latest policy decision on Tuesday with consensus forecasts that there will be a further 50 basis-point hike to 1.35%.

The rate decision as well as forward guidance from the bank will be important for the Australian dollar.

The Euro-Zone inflation data failed to support the Euro with ECB rate hikes priced in. Markets remained uneasy over the outlook for peripheral yields which curbed Euro support. There was volatile trading after the US ISM manufacturing data. Unease over the US economy undermined confidence in the dollar.

Lower US yields sapped overall US currency support. EUR/USD settled around 1.0425 from 1.0370 lows with the pair trading around 1.0430 on Monday. Lower US yields provided some yen protection, but the Bank of Japan policy continued to undermine the Japanese currency. USD/JPY dipped to lows at 134.75 before a recovery to 135.40 on Monday. USD/CHF settled around 0.9600 with a solid franc tone.

Sterling was subjected to further choppy trading with a lack of confidence in the UK outlook. GBP/USD slumped to 2-week lows at 1.1975 before a recovery to 1.2100.

Commodity currencies recovered from intra-day lows on Friday. AUD/USD dipped to lows at 0.6765 before a recovery to just above 0.6800 and edged higher to 0.6830 on Monday ahead of the RBA rate decision. USD/CAD was little changed around 1.2875 with choppy trading in oil prices.

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