Germany's Lindner: Not following British down the path of expansionary fiscal policy

German Finance Minister Christian Lindner said on Thursday that they will mobilise Germany's economic strength when necessary, as reported by Reuters.

Regarding the German government's decision to implement a price brake on gas and electricity while providing funding of up to €200 billion for an "economic defence shield," Linder said that these measures should not fuel inflation.

"We are not following the British down the path of expansionary fiscal policy," the minister explained.

Market reaction

The EUR/USD pair retreated from session highs following these comments and was last seen trading at 0.9705, where it was down 0.33% on a daily basis.

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GBP/USD surges past 1.2200 mark amid softer US inflation data-inspired USD slump

GBP/USD adds to its intraday gains and rallies to a one-and-half-week high amid a brutal USD selloff.

A weaker US CPI report pushed back expectations for a larger Fed rate hike and weighed on the USD.

A strong rally in the US equity futures exerts additional downward pressure on the safe-haven buck.

The GBP/USD pair catches aggressive bids and surges past the 1.2200 mark, hitting a one-and-half-week high during the early North American session.

The intraday US dollar selling picks up pace following the release of weaker US consumer inflation figures, which, in turn, provides a goodish lift to the GBP/USD pair. The Bureau of Labour Statistics reported that the headline US CPI remained flat in July against the 0.2% rise anticipated. Adding to this, the yearly rate decelerated to 8.5% during the reported month, again missing estimates pointing to a fall to 8.7% from the 9.1% in June.

Furthermore, core inflation, which excludes food and energy prices, came in at 0.3% MoM and held steady at a 5.9% YoY rate vs 0.5% and 6.1% anticipated, respectively. The softer data now seems to have pushed back market expectations for a larger Fed rate hike move at the September policy meeting and prompts aggressive selling around the USD. Apart from this, a strong rally in the US equity markets exerts additional pressure on the safe-haven buck.

The strong intraday move up allowed the GBP/USD pair to break through the 1.2130-1.2140 resistance zone, triggering an aggressive short-covering move. Hence, it remains to be seen if the momentum is backed by genuine buying or turns out to be a stop run amid the Bank of England's gloomy economic outlook.

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GBP/USD climbs to fresh daily high, further beyond 1.2200 amid sustained USD selling

GBP/USD regains positive traction on Monday amid the prevalent USD selling bias.

Diminishing odds for more aggressive Fed rate hikes continue to weigh on the USD.

A softer risk tone, rebounding US bond yields to limit the USD losses and cap the pair.

The GBP/USD pair jumps back above the 1.2200 mark during the early part of the European session, attracting fresh buying on the first day of a new week. Spot prices, however, still remain well below a one-month high at around the 1.2245 touched on Friday.

The US dollar languishes near its lowest level since July 5, which is turning out to be a key factor lending support to the GBP/USD pair. Market participants continue to scale back their expectations for more aggressive rate hikes by the Federal Reserve amid worries about an economic downturn. This, to a larger extent, overshadows Friday's stronger US Personal Consumption Expenditures (PCE) and continues to weigh on the greenback.

The British pound in contrast is underpinned by rising bets for a 50 bps rate hike by the Bank of England – though, that said, a combination of factors could cap gains for the GBP/USD pair. The recent optimistic move in the equity markets has run out of steam amid growing recession fears. This, along with a modest bounce in the US Treasury bond yields, should help limit the downside for the USD and act as a headwind for the major, at least for now.

Investors might also refrain from placing aggressive bets and prefer to wait on the sidelines ahead of confirmation from the Bank of England policy meeting on Thursday. Apart from this, important US macro data scheduled at the beginning of a new month would determine the next leg of a directional move for the GBP/USD pair. A rather busy week kicks off with the release of the ISM Manufacturing PMI, which could provide some trading impetus to the major.

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 Dollar slides as mixed U.S. data highlights uncertain path

The dollar dropped to a three-week low in choppy trading on Friday, as investor concerns about recession outweighed inflation worries, for now, amid a mixed batch of economic data.

There was also a lot of month-end position-squaring, analysts said.

Earlier, U.S. economic numbers showed that inflation continued its red-hot rise in June, keeping the Federal Reserve on track to raise interest rates as aggressively as it deems necessary.

The personal consumption expenditures (PCE) price index jumped 1.0% last month, the largest increase since September 2005 and followed a 0.6% gain in May. In the 12 months through June, the PCE price index advanced 6.8%, the biggest gain since January 1982.

Excluding the volatile food and energy components, the PCE price index shot up 0.6% after climbing 0.3% in May.

The dollar initially rose on the inflation numbers, but gains fizzled amid the final University of Michigan report showing consumers' inflation expectations slipped in July.

Federal Reserve Chairman Jerome Powell had mentioned the Michigan survey last month as key behind the pivot to the more aggressive rate posture.

The greenback was also partly weighed down by data showing the Chicago manufacturing index falling to a 23-month low of 52.1 from a prior low of 56.0, according to Action Economics.

In afternoon trading, the dollar index, a measure of its value against six major currencies, slid 0.3% to 105.89. Earlier, it slid to a three-week trough of 105.53.

"Traders are engaging in some quarter-end position-squaring, preparing for a period in which inflation and growth rates subside, tilting interest differentials against the dollar," said Karl Schamotta, chief market strategist at payments company Corpay in Toronto.

"Next week's (U.S.) jobs report looms as a potential volatility catalyst, and no one wants to be caught offside if job creation slows more than expected," Schamotta added.

Another key indicator, the U.S. employment cost index (ECI), also increased. The ECI, the broadest measure of labor costs, rose 1.3% last quarter after accelerating 1.4% in the January-March period, the Labor Department said on Friday.

The index is widely viewed as one of the better gauges of labor market slack and a predictor of core inflation.

Action Economics, in its blog after the U.S. data, said the ECI was one of the metrics that alarmed the Fed and caused its pivot to a 75 basis points hike.

Post-data on Friday, rates futures markets have priced in a 72% chance of a 50 basis points hike at the Fed's September policy meeting, with a 28% probability of a 75-bps rate increase. .

The rates markets also predict that the fed funds rate will peak in February 2023. Pre-U.S. data, futures were betting that top in the fed funds rate would hit this December.

The euro rose 0.2% versus the dollar to $1.0213.

Against the yen, the dollar slid 0.7% to 133.42 yen. The greenback also posted its largest monthly percentage fall since July 2020.

The yen was the primary short bet of the widening interest rate differential trade between the United States and its global peers, with net shorts on the currency, despite a recent pullback, above historical averages at $5.4 billion.

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EUR/USD Price Analysis: Further consolidation appears in store

EUR/USD remains within a consolidative mood near 1.0250.

Extra side-lined trade appears favoured in the near term.

EUR/USD fades the initial pessimism and refocuses on the upper end of the recent range near 1.0260.

The current consolidative mood carries the potential to extend further, at least until the FOMC meeting due later in the week. The upside should remain limited by the weekly high around 1.0280, while the low-1.0100s are expected to hold the downside for the time being.

In the meantime, the pair is expected to remain under downside pressure while below the 5-month support line around 1.0490.

In the longer run, the pair’s bearish view is expected to prevail as long as it trades below the 200-day SMA at 1.0991.

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GBP/USD pares intraday losses to weekly low, keeps the red ahead of Powell’s testimony

GBP/USD witnessed heavy selling on Wednesday and dropped to a fresh weekly low.

Dovish BoE expectations, recession fears, Brexit woes undermined the British pound.

A goodish pickup in the USD demand further exerted downward pressure on the pair.

The downside seems cushioned as the focus remains on Fed Chair Powell’s testimony.

The GBP/USD pair refreshed its weekly low during the early part of the European session, albeit managing to find some support ahead of mid-1.2100s and recovering a few pips thereafter. The pair was last seen trading around the 1.2225-1.2230 region, still down nearly 0.40% for the day.

The US dollar regained positive traction amid growing market acceptance that the Fed would stick to its policy tightening path and raise interest rates at a faster pace to curb soaring inflation. In fact, the markets have been pricing in another 75 bps rate hike at the next FOMC meeting in July. This, along with a fresh wave of the global risk-aversion trade, boosted the safe-haven USD and exerted downward pressure on the GBP/USD pair.

The British pound was further weighed down by expectations that the Bank of England would adopt a more gradual approach to raising interest rates amid recession fears and the cost of living crisis. The market fears were further fueled by the latest UK consumer inflation data, showing that the headline CPI climbed to a new 40-year high of 9.1% in May. On a monthly basis, the gauge decelerated sharply from a 2.5% increase in April and rose 0.7%.

Apart from this, the UK-EU impasse over the Northern Ireland Protocol of the Brexit agreement further undermined sterling and contributed to the GBP/USD pair's intraday decline. Meanwhile, the global flight to safety triggered a modest pullback in the US Treasury bond yields and held back the USD bulls from placing aggressive bets. This, in turn, was seen as the only factor that assisted the pair to rebound around 65-70 pips from the daily low.

It, however, remains to be seen if the GBP/USD pair is able to capitalize on the intraday bounce as investors await Fed Chair Jerome Powell's testimony before the Senate Banking Committee. Market participants will look for fresh clues about the Fed's policy tightening path, which would play a key role in influencing the USD price dynamics. This, in turn, should assist traders to determine the next leg of a directional move for the GBP/USD pair.

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GBP/USD: Rebound remains capped below 1.2100 ahead of the Fed

GBP/USD extends the bounce ahead of the critical Fed outcome.

US dollar retreats alongside yields and amid a rally in EUR/USD.

BOE is set to hike rates by 25 bps while the Fed could go for a 75 bps hike.

GBP/USD is consolidating the steep upsurge below 1.2100, as bulls take a breather after extending the recovery by over 150 pips.

The main catalyst behind cable’s impressive rebound could be linked to the broad-based US dollar correction, as investors take profits off the table on their USD longs ahead of the all-important Fed interest rate decision. The Fed pre-committed to a 50 bps rate hike in June and July, although markets have baked in a 75 bps lift-off after Friday’s hot US inflation.

Meanwhile, the pick up in the EUR/USD recovery following news that the ECB has called on an emergency meeting to discuss the recent sell-off in the bond market. The euro capitalized on the ECB news, as it fuelled hopes that the central bank was ready to act on the market turmoil. The renewed uptick in the main currency pair triggered a fresh downswing in the dollar across its main peers, boding well for the beleaguered pound.

On Thursday, the Bank of England (BOE) monetary policy decision will take the center stage after Wednesday’s Fed outcome is out of the way. The BOE Is widely expected to hike the key rates by 0.25 bps to 1.25% this month.

Although a surprise 50 bps rate hike remains on the table amid higher inflation expectations and hopes that the BOE could take a strong action to control inflation.

Ahead of these central bank policy outcomes, the US Retail Sales data will be eyed for near-term trading impetus. The data, however, is unlikely to drive markets.

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 AUD/USD remains on the defensive near 0.7200 mark, downside seems cushioned

AUD/USD came under some renewed selling pressure on Wednesday amid modest USD strength.

A goodish pickup in the US bond yields and a softer risk tone benefitted the safe-haven greenback.

A break below the 0.7150 area is needed to confirm a bearish outlook ahead of the US CPI on Friday.

The AUD/USD pair met with a fresh supply on Wednesday and erased the previous day's modest gains back closer to the 100-day SMA resistance. The pair remained on the defensive heading into the North American session and was last seen trading around the 0.7200 mark, down nearly 0.35% for the day.

A combination of factors provided a modest intraday lift to the US dollar, which, in turn, exerted some downward pressure on the AUD/USD pair. Investors remain concerned that the global supply chain disruption caused by the Russia-Ukraine war could push consumer prices even higher and force the Fed to tighten its monetary policy at a faster pace. This, in turn, triggered a fresh leg up in the US Treasury bond yields, which, along with a softer risk tone, offered some support to the safe-haven greenback.

The market sentiment remains fragile amid doubts that central banks can hike interest rates to curb inflation without impacting economic growth. This, to a larger extent, overshadowed a more hawkish Reserve Bank of Australia (RBA) decision on Tuesday. It is worth recalling that the RBA raised interest rates by the most in 22 years and indicated that further tightening is in the pipeline as it battles to restrain surging inflation. The markets were quick to price in the real risk of another 50 bps rise in July.

That said, the AUD/USD pair's inability to gain any meaningful traction and repeated failures near the 100/200-day SMA confluence suggests that the recent bounce from the YTD low has run out of steam. Traders, however, seemed reluctant to place aggressive bearish bets and preferred to wait for the US consumer inflation figures, scheduled for release on Friday. Hence, it will be prudent to wait for sustained weakness below the 0.7150 horizontal support before positioning for any further depreciating move.

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EUR/USD looks offered and drops to 3-day lows near 1.0660

EUR/USD loses further ground and revisits the 1.0660 region.

The greenback extends the bid bias despite lower yields.

Germany Construction PMI eased to 45.4 in May.

Sellers appear well in control of the sentiment around the European currency and drag EUR/USD back to the 1.0660 zone on Tuesday.

EUR/USD in multi-day lows

EUR/USD sheds ground for the third session in a row on Tuesday and pushes further south of the 1.0700 mark in the first half of the week, always in response to the selling pressure in the risk-associated universe.

Also reflecting the offered bias in the risk complex, US and German yields recede from recent tops, although they manage well to keep the trade in the upper end of the range.

In the domestic calendar, German Factory Orders contracted at a monthly 2.7% in April and the Construction PMI eased a tad to 45.4 in May. Across the Atlantic, Balance of Trade results and the Consumer Credit Change figures are due later in the NA session.

What to look for around EUR

EUR/USD continues to lose momentum and extends further the rejection from peaks beyond the 1.0700 mark in past sessions.

The pair’s recent multi-week recovery has been on the back of supportive ECB-speak, which continued to point at an initial rate hike as soon as in July, while the consensus view that the bond-purchase programme should end at some point in early Q3 has also lent legs to the European currency.

However, EUR/USD is still far away from exiting the woods and it is expected to remain at the mercy of dollar dynamics, geopolitical concerns and the Fed-ECB divergence, while higher German yields, persistent elevated inflation in the euro area and a decent pace of the economic recovery in the region are also supportive of an improvement in the mood around the euro.

Key events in the euro area this week: Germany Construction PMI (Tuesday) – Advanced EMU Q1 GDP Growth Rate (Wednesday) – ECB Interest Rate Decision (Thursday).

Eminent issues on the back boiler: Speculation of the start of the hiking cycle by the ECB as soon as this summer. Asymmetric economic recovery post-pandemic in the euro bloc. Impact of the war in Ukraine on the region’s growth prospects.

EUR/USD levels to watch

So far, spot is retreating 0.09% at 1.0686 and a breach of 1.0627 (monthly low June 1) would target 1.0532 (low May 20) en route to 1.0459 (low May 18). On the upside, the next resistance aligns at 1.0786 (monthly high May 30) seconded by 1.0936 (weekly high April 21) and finally 1.0945 (100-day SMA).

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Dow Futures Up 55 Pts; Core PCE Data in Focus

U.S. stocks are seen opening slightly higher Friday, rallying into the long weekend, helped by a reassessment of the Federal Reserve’s tightening bias as well as some strong retail sector earnings.

At 7 AM ET (1100 GMT), the Dow Futures contract was up 55 points, or 0.2%, S&P 500 Futures traded 14 points, or 0.3%, higher and Nasdaq 100 Futures climbed 70 points, or 0.6%.

The main equity indices on Wall Street posted strong gains Thursday, with the blue-chip Dow Jones Industrial Average closing over 500 points, or 1.6%, higher, while the broad-based S&P 500 gaining 2% and the tech-heavy Nasdaq Composite rising 2.7%.

These averages are on track to snap long losing streaks ahead of the Memorial Day holiday, with the Dow and S&P 500 both over 4% higher for the week and the Nasdaq Composite up 3.4% on the week.

Helping the better tone this week has been the take-away from the minutes of the last Federal Reserve meeting, which indicated that the central bank could slow down its tightening if it sees signs inflation is on a downward trend. 

This puts the spotlight on the release of the core personal consumption expenditure index, at 8:30 AM ET (1230 GMT), which is the Fed's preferred measure of inflationary trends. This is expected to fall to 4.9% on an annualized basis in April, from 5.2% the previous month.

A batch of strong earnings from the retail sector has also boosted market sentiment this week, with the likes of Macy’s (NYSE:M), Williams-Sonoma (NYSE:WSM), Dollar Tree (NASDAQ:DLTR) and Dollar General (NYSE:DG) all posting healthy gains.

Retail earnings continue Friday, with Big Lots (NYSE:BIG) due to report, but there will also be attention on Ulta Beauty (NASDAQ:ULTA), which reported better-than-expected quarterly results after the close Thursday, and Gap (NYSE:GPS), which slashed its full-year profit guidance. 

Workday (NASDAQ:WDAY) will also be in focus after missing earnings forecasts late on Thursday and giving disappointing guidance.

Oil prices edged lower Friday, consolidating around a two-month high on expected demand growth at the start of the summer driving season in the United States.

Also propping up the market is the continued expectation that the European Commission will eventually obtain the unanimous support of all 27 bloc member states for its proposed new sanctions against Russia, despite Hungary’s opposition to date.

By 7 AM ET, U.S. crude futures traded 0.4% lower at $113.67 a barrel, after gaining 3.4% during the previous session, while the Brent contract traded 0.4% lower at $113.70, after a gain of 2.7% on Thursday.

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USD/CHF slides further below 0.9900 mark amid weaker USD, focus remains on US CPI

USD/CHF corrected sharply on Wednesday and snapped a four-day winning streak.

Retreating US bond yields prompted some USD profit-taking and exerted pressure.

The risk-on mood might undermine the safe-haven CHF and limit any further losses.

The focus remains glued to the release of the latest US consumer inflation figures.

The USD/CHF pair added to its intraday losses and dropped to a fresh daily low, around the 0.9870 area during the first half of the European session.

The pair witnessed heavy selling on Wednesday and snapped a four-day winning streak to its highest level since May 2019, around the 0.9975 touched the previous day. The ongoing retracement slide in the US Treasury bond yields forced traders to lighten their US dollar bullish bets. This, in turn, was seen as a key factor that exerted downward pressure on the USD/CHF pair.

The downside, however, seems limited amid a generally positive tone around the equity markets, which tends to undermine the safe-haven Swiss franc. Apart from this, the prospects for a more aggressive policy tightening by the Fed should help limit the downside for the buck and lend support to the USD/CHF pair, warranting caution before placing fresh bearish bets.

The Fed is widely expected to tighten its monetary policy at a faster pace to combat stubbornly high inflation. In fact, the markets are pricing in a 200 bps rate hike for the rest of 2022 amid concerns that China's zero-covid policy and the war in Ukraine would result in tight global supply chains. This could push already elevated consumer prices even higher.

Hence, the focus will remain glued to the US CPI report, due for release later during the early North American session. The data could influence the Fed's tightening path, which, in turn, would influence the near-term USD price dynamics. Hence, it will be prudent to wait for strong follow-through selling before confirming that the USD/CHF pair has topped out.

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Eurozone Economy Grew 0.2% in 1Q; France Stagnates, Germany Avoids Recession

The Eurozone economy grew by 0.2% in the first three months of the year, but its post-pandemic growth weakened sharply toward the end of the period under pressure from the war in Ukraine and record-high inflation.

Eurostat's figures, released on Friday, mean that gross domestic product was up 5.0% from a year earlier, a time when the region's economy was still laboring under the worst of the effects from the pandemic. 

Both figures were largely in line with expectations, but masked some big divergences from consensus among some of the region's biggest member states. French GDP undershot expectations to stagnate in the quarter, while German GDP rose 0.2%, defying fears that it would register a second straight quarter of negative growth, thanks to strong investment spending.

At the same time, Eurostat said that inflation in the Eurozone hit a new record high since the creation of the single currency. Consumer prices rose 7.5% in April, up from 7.4% in March. While the slower rise in the headline rate suggests that an absolute peak for inflation may be near, underlying price pressures remained strong: core CPI rose by over 1% for the second month running, and Eurostat's harmonized measure of annual inflation excluding food and energy accelerated far more than forecast to 3.9% from 3.2% last month.

The euro rose by around half a cent against the dollar in the course of the morning as national GDP data were published in advance of the Eurozone numbers. By 5:20 AM ET (0920 GMT), it was at $1.0576, up 0.8% on the day. A bounce in Chinese assets in response to promises of more economic policy support from Beijing had also helped sentiment toward the euro and to risk assets more broadly.

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EUR/USD Price Analysis: Next target appears at 1.1000

EUR/USD extends the rebound to the 1.0940 region.

A move to the 1.1000 hurdle should not be ruled out.

EUR/USD’s upside momentum picks up extra pace beyond the 1.0900 yardstick on Thursday.

Further advance appears in store for the pair in the very near term with the immediate hurdle now at the psychological 1.0000 barrier. The surpass of the latter should put a test of the 55-day SMA, today at 1.1077, back on the radar.

While below the 200-day SMA, today at 1.1415, the outlook for the pair is expected to remain negative.

EUR/USD daily chart

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EUR/USD Price Analysis: Extra pullbacks seen below 1.080

EUR/USD fades the pre-ECB uptick to the 1.0920 zone on Thursday.

Recent lows around 1.0800 emerge as the next contention area.

In light of the ongoing price action, extra losses in the pair remain in the pipeline in the short-term horizon. Against that, a break below the so far monthly low at 1.0808 (April 14 should pave the way for a quick visit to the 2022 low at 1.0805 (March 7) before the May 2020 low at 1.0766 (May 7).

While below the 200-day SMA, today at 1.1440, the outlook for the pair is expected to remain negative. 

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