UK inflation data Wednesday.

Minneapolis Fed President Kashkari stated that it was a close call whether interest rates should be increased again at the June policy meeting. He added that there was no evidence that banking-sector stresses are doing the Fed’s job on inflation and he warned that was possible that rates might need to increase to at least 6.0%.

St Louis head Bullard stated that the Fed will have to increase rates further, potentially by a further 50 basis points. He added that the previous projection of rates just above 5.00% was based on expectations of weaker growth and inflation improvements that have not been seen.

There were further talks between President Biden and House majority leader McCarthy on Monday. Both sides stated that there had been progress, but no deal was reached.

Treasury Secretary Yellen reiterated that the hard deadline for avoiding a debt default is June 1st.

The dollar overall was little changed as it retreated from intra-day highs. USD/JPY did post 6-month highs just below 138.90 before a correction to slightly below 138.50.

The latest PMI data will be released on Tuesday with flash May data for the Euro-Zone, UK and US.

Markets expect further contraction in the manufacturing sector and solid growth in services with little net change in readings compared to April.

The evidence on pricing pressure will also be important for market expectations surrounding monetary policy. Markets will also be monitoring the testimony from Bank of England Governor Bailey and other Monetary Policy committee members who are due to testify at the Treasury Select Committee. In particular, traders will be looking for any hints on whether interest rates have peaked.

The latest UK inflation data is due for release on Wednesday. Consensus forecasts are for a sharp decline in the headline rate to 8.2% from 10.1% due to the jump in prices last year which will come out of the calculation. The core rate is expected to remain at 6.2%.

Narrow ranges prevailed on Monday with a lack of data releases and little action. Euro-Zone consumer confidence edged higher to -17.4 from -17.5 and a 15-month high, but lower than consensus forecasts. Higher US yields underpinned the dollar. EUR/USD was unable to move above 1.0830 and edged back to just below 1.0800. EUR/USD settled just above 1.0800 on Tuesday.

Higher US yields also undermined the yen. USD/JPY moved above 138.50 in US trading and posted a 6-month high close to 138.90 before a retreat to just below 138.50.

The Swiss franc maintained a firm tone on doubts over the global economy. EUR/CHF retreated to 7-month lows around 0.9710. USD/CHF his resistance close to 0.9000.

Sterling was held in tight ranges. GBP/USD was again unable to hold above 1.2450 with slight EUR/GBP gains to 0.8695.

Commodity currencies drifted lower in tight ranges. AUD/USD settled close to 0.6650 with further doubts over the Chinese outlook. USD/CAD settled around 1.3500 from 1.3515 highs.

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