European recession fears increase.

Both German PMI readings were below consensus forecasts and also registered contraction for the month.

The Euro-Zone manufacturing index declined to a 25-month low of 49.6 from 52.1 previously and below forecasts of 51.0. The services-sector index dipped to a 15-month low of 50.6 from 53.0 previously and also below expectations of 52.0.  New orders declined on the month and business expectations also declined sharply to the lowest level since May 2020.

There was an easing of cost pressures, especially in manufacturing and the increase in selling prices eased slightly, although increases were still very rapid in an historical context.

The US PMI manufacturing index edged lower to a 24-month low of 52.3 for June from 52.7 previously, but slightly above consensus forecasts. The services-sector index dipped sharply to a 26-month low of 47.0 from 52.7 previously and well below consensus forecasts of 52.6.

New orders growth was subdued while employment growth was weak with a mixture of demand and supply problems. Although cost pressures remained strong, there was a slower rate of increase with selling prices increasing at the slowest rate since March 2021.

The PMI data overall increased hopes that inflation pressures were peaking.

US yields declined again after the US data with the 10-year yield declining to near 2.75% and the 2-year yield below 3.00%.

CFTC data recorded a further increase in short Euro positions to near 43,000 contracts from 25,000 previously limiting to some extent the scope for further Euro selling.

The UK PMI manufacturing index edged lower to a 25-month low of 52.2 for June from 52.8 previously and was in line with consensus forecasts. The services-sector index also declined to a 17-month low of 53.3 from 54.3, but was slightly above expectations of 52.9.

New orders increased slightly on the month while business optimism improved only marginally from 25-month lows recorded the previous month. There was a slight easing of upward pressure on costs and the increase in prices charged also moderated as companies responded to weaker demand.

The highlight of the week will be the Federal Reserve policy decision with expectations of a second successive increase of 75 basis points.

Markets will, however, be on alert for unofficial briefings from the Fed after the previous meeting when the larger than expected rate hike was flagged in advance.

The Euro slumped after the Euro-Zone PMI data with a sharp dip in German bond yields to 7-week lows. The dollar, in turn, was hurt by the weaker than expected US PMI services-sector data. EUR/USD dipped to lows at 1.0130 before a recovery to 1.0200 and traded close to this level on Monday.

Lower US yields and a dip in global equities boosted the Japanese yen with sharp gains for the Japanese currency. USD/JPY dipped sharply to lows near 135.50 before a recovery to 136.30 on Monday.

Concerns over the global outlook underpinned the Swiss currency. USD/CHF dipped sharply to low at 0.9600 before a recovery to 0.9630.

Sterling drew an element of relative support from the UK business confidence data, but sentiment remained fragile. GBP/USD recovered to 1.2000 from lows around 1.1920, but failed to hold above this level.

Commodity currencies were subjected to choppy trading and failed to hold gains. AUD/USD settled just above 0.6900 from 1-month highs around 0.6975. USD/CAD posted net gains to 1.2940 amid choppy trading in oil prices.

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