Dollar dips to 5-week lows.

The US PCE prices index increased 0.2% for April with the annual rate at 6.3% from 6.6% previously. The core index increased 0.3% on the month with the year-on-year increase slowing to 4.9% from 5.2% with both figures in line with market expectations.

The data overall maintained an element of optimism that US inflation pressures were peaking which maintained hopes that very aggressive Fed tightening could be avoided.

The latest inflation data helped underpin a tentative shift in market expectations and a firmer tone in risk appetite despite global central banks continuing to tighten monetary policy.

Wall Street equities posted gains with the Nasdaq index posting a 3.3% advance on the day.

Shanghai is still aiming to start a cautious re-opening of the economy on June 1st and the local authorities have also announced a 50-point package to help underpin the economy.

Tentative optimism over Chinese developments also helped underpin risk appetite on Monday and Asian equity markets posted a 3-week high.

A limited shift in medium-term Fed expectations, allied with rate hikes by other global central banks and a decline in US yields, undermined potential support for the US dollar.

The currency index retreated to a 5-week low just below 101.50 on Friday and re-tested this level on Monday as firm risk appetite also helped limit potential demand for the US currency.

CFTC data recorded a renewed net advance in short non-commercial Sterling positions to just above 80,000 in the latest week from just above 79,000 the previous week. This was the largest short position since September 2019, maintaining the potential for short covering if there is a shift in sentiment surrounding the UK economy.

European developments will be important on Monday with the latest German inflation data expected to register a fresh record high of 7.6%.

Developments surrounding a planned embargo on Russian oil imports will also be important with EU ambassadors due to meet on Monday ahead of the leaders’ Summit later in the day which will continue on Tuesday.

There will be attempts to forge a compromise to overcome Hungarian resistance and the outcome will have an important impact on the energy sector. US markets will be closed on Monday.

Bundesbank head Nagel stated that the first rate move should take place in July with more to follow in the second half of the year. He also called for a strong signal at the June meeting. Markets assume a July rate hike is a done deal. Trading was relatively cautious on Friday with pre-weekend position adjustment. A scaling back of most hawkish Fed expectations limited dollar support.

EUR/USD found support close to 1.0700 and edged higher with a further net advance to around 1.0760 on Friday. Lower yields sapped support for the US currency against the yen. USD/JPY settled close to the 127.00 level on Monday.

The Swiss franc maintained a firm overall tone on speculation of a more hawkish National Bank stance. USD/CHF found support close to 0.9750 and settled around 0.9565 on Monday. EUR/CHF settled close to 1.0290.

Sterling was able to secure net gain with fiscal support and solid risk appetite underpinning confidence. GBP/USD posted net gains to 1.2650 on Monday.

Commodity currencies posted net gains amid robust risk conditions. AUD/USD posted net gains to 3-week highs around 0.7185 as hopes for a Shanghai recovery also underpinned sentiment. USD/CAD retreated to 1-month lows at 1.2700 on Monday ahead of Wednesday’s Bank of Canada policy meeting.

Economic Calendar