GBP: The British Pound started this morning’s trading session by building on its gains from the previous week. In fact, the recent increase in the value of the pound may have been a further reaction to the high increase in market-implied expectations for the Bank of England rate from the previous week. The Bank’s implied peak rate increased from just over 4.75% to almost 5.5% after the Office for National Statistics reported that domestic inflation in the UK increased during April, against widespread expectations that it would decline. This put the BoE in a difficult situation. In the near future, market participants will be watching for the publication of the final UK Services PMI in order to get a boost before the US ISM Services PMI, which is scheduled to be released later during the early North American session.
EUR: After the eurozone CPI came in below estimates last week, there were growing hopes that the European Central Bank will tighten even further. Even while some ECB officials have been more dovish in their remarks, ECB President Christine Lagarde hinted at additional interest rate increases after the CPI announcement, saying there was still “ground to cover” in the tightening cycle. However, there is further information on inflation to consider today, with May producer prices in the Eurozone predicted to show a significant monthly decline of 3.1%. While ECB President Christine Lagarde is due to testify at a hearing before the Committee on Economic and Monetary Affairs, there are also German trade data and PMI data for most of the European region to consider during the session.
USD: Because it was unclear whether the Federal Reserve will raise interest rates in June, the U.S. dollar traded close to two-month highs. The dollar index and dollar index futures actually maintained their strength when statistics released on Friday indicated that nonfarm payrolls increased significantly more than anticipated in May, indicating a healthy U.S. employment market. The figure provided a hawkish forecast for the central bank in June, along with a stronger-than-expected print on the Fed’s preferred inflation index earlier in May. However, a number of Fed officials praised the prospect of a pause in rate increases this month and urged the Fed to reflect on its year-long campaign of rate increases against inflation. In the end, this led to some doubt regarding the central bank’s potential actions next week, particularly given that other facets of the U.S. economy appear to be slowing.
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