Fresh record high for Euro-Zone inflation.

The headline Euro-Zone consumer prices inflation rate increased to a fresh record high of 8.9% for July from 8.6% previously and above consensus forecasts of 8.7%. The underlying rate increased to 4.0% from 3.7% and slightly above expectations of 3.9%.

GDP data was stronger than expected with a flash growth estimate of 0.7% for the second quarter after an upwardly revised 0.6% increase for the previous quarter.

The US PCE prices index increased 1.0% for June with an annual rate of 6.8% from 6.3% previously. The core rate increased 0.6% on the month with the year-on-year rate of 4.8% slightly above the previous figure and market expectations of 4.7%.

The higher-than-expected reading triggered renewed concerns over inflation trends and reversed the sentiment that had been building after the Fed policy decision and weaker than expected GDP data.

Treasuries briefly dipped after the US PCE prices data, but there was solid buying on dips and US yields moved lower again with the 10-year yield trading around 3-month lows at 2.67% in early Europe on Monday.

The dollar posted net gains after the PCE data, but also failed to hold gains with lower yields and month-end selling pulling the US currency lower.

The dollar overall dipped to 3-week lows as USD/JPY slumped to 6-week lows.

China’s PMI manufacturing index dipped to 49.0 for July from 50.2 previously and below consensus forecasts of 50.4. The non-manufacturing index also retreated to 53.8 from 54.7 and in line with expectations while the Caixin manufacturing index was also weaker than expected. The data maintained some reservations surrounding the Chinese outlook.

UK mortgage approvals declined to 63,700 for June from a revised 65,700 previously and slightly below consensus forecasts with the lowest reading since June 2020. There was, however, a stronger than expected increase in consumer credit with the strongest increase since May 2019.

There were some fears that higher borrowing reflected difficulties in meeting commitments.

Record Euro-Zone inflation data had little market impact on Friday. Stronger than expected GDP data also failed to lift the Euro.  The dollar posted immediate gains after the US PCE prices data. The dollar failed to hold gains and was undermined by month-end selling.

EUR/USD found support close to 1.0150 and rallied to 1.0225 with little net change on Monday.

There was very choppy yen trading in New York on Friday. USD/JPY peaked at 134.50 before sliding as US yields retreated. USD/JPY hit lows just above 132.00 on Monday before a recovery to 132.50.

The Swiss franc was resilient during Friday with a further reluctance to sell the currency. USD/CHF posted net losses to near 0.9500 with EUR/CHF around 0.9720.

There was choppy Sterling trading with month-end position adjustment in focus. GBP/USD slipped sharply to lows at 1.2065 before a recovery to near 1.2200 and traded around 1.2185 on Monday.

Commodity currencies were subjected to choppy trading with subdued Chinese data hampering the Australian dollar. AUD/USD rallied from 0.6910 lows to 0.6990 on Monday. USD/CAD consolidated just above 1.2800 on Monday with support below this level.

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