US Inflation to hit fresh 40-year peak.

US Treasuries remained vulnerable to Monday with the 10-year yield increasing to above 2.80% and the highest level since late 2018. Global yields also moved higher as markets fretted over underlying inflation developments across major economies.

Global equities have been broadly resilient over the past few weeks, but confidence weakened on Monday with increased concerns over the inflation outlook and concerns over aggressive monetary tightening and the S&P 500 index declined close to 1.7%.

Although the latest Chinese coronavirus developments in Shanghai provided an element of relief, markets overall remained on the defensive.

The latest US inflation data will be released on Tuesday with consensus forecasts that the headline rate will increase to a fresh 40-year high of 8.4% from 7.9% previously while the core rate is expected to increase to 6.6% from 6.4% and also the highest reading since 1982.

Stronger than expected data would reinforce pressure for a much more aggressive Fed tightening while lower figures would provide an element of relief. Reaction to the data will also give important insight into overall market positioning across asset classes.

Japanese Finance Minister Suzuki stated that excess FX volatility and disorderly FX movements could have adverse effects on the economy and financial stability. There were reservations over selling the yen after the comments, but underlying yen sentiment remained negative amid widening yield spreads.

Austrian President Nehammer had a meeting with Russian President Putin on Monday and stated that the dialogue was unfriendly and he was rather pessimistic over the outlook for peace.

There was further strong evidence of Russia building forces to attack the Donbas region.

There were also claims that Russia had used chemical weapons in Mariupol and any confirmation would increase pressure for a more aggressive Western response.

The Reserve Bank of New Zealand will announce its latest interest rate decision on Wednesday with consensus expectations for a further 0.25% increase to 1.25%, although with some significant speculation over a 0.50% hike.

Forward guidance was raised sharply at the previous meeting, limited the scope for a more hawkish statement, especially with unease over domestic coronavirus trends.

BRC data recorded a 0.4% decline in like-for-like retail sales for March from 2.7% previously while inflation pressures increased to an 11-year high. The sales data reinforced expectations of a slowdown in consumer spending. UK labour-market data recorded a slight decline in unemployment to 3.8% from 3.9% previously while core average earnings increased 4.0% over the year from 3.8% and both figures in line with expectations.

Markets remained uneasy over the French Presidential election and risk of increased support for National Front leader Le Pen. The Euro was again unable to sustain intra-day highs. Overall yields continued to boost dollar support. EUR/USD settled around 1.0880 with narrow ranges prevailing on Tuesday.

USD/JPY break above 125.00 triggered stop-loss buying and a surge to 6-year highs at 125.75. The Japanese warning over FX instability had limited impact in curbing further yen selling. USD/JPY, however, found support above 125.00 and surged again to 125.60 in early Europe on Tuesday.

The Swiss franc gained support from expectations of medium-term gains on inflation differentials. USD/CHF dipped to test the 0.9300 level before a slight recovery.

Sterling remained firmly in the doldrums with the latest round of data releases maintaining reservations over the outlook. GBP/USD did manage to find some support below 1.3000, but with no scope for gains. GBP/EUR secured limited net gains to the 1.1980 area.

Commodity currencies remained on the defensive amid a weaker tone in equity markets. AUD/USD dipped to 0.7400 before a limited recovery to 0.7430 on some relief over Chinese coronavirus trends. USD/CAD traded above 1.2600 with a peak just above 1.2650 as oil prices dipped sharply.

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