Euro loses ground

The euro moved lower against the dollar yesterday trading down to $1.07 for the first time since early April. Sterling did a little better staying above $1.24p, leaving the single currency-pound exchange rate a little lower and trading this morning at under 87p

Most Government bond yields were more or les unchanged yesterday with US ten-year yields closing at 3.7% and equivalent German bunds also unchanged at 2.45%, though both are a couple of basis points higher this morning

UK inflation data for April surprised to the upside, with the CPI annual rate coming in at 8.7% (down from 10.1% in March) but higher than both the consensus forecast of 8.2% and the Bank of England’s expectations. Of even more significance, the pace of annual core CPI inflation accelerated to 6.8% in April from 6.2% in March reflecting a pick up in both goods and services prices. This reading is evidence to the BoE that inflation is yet to be tamed and will embolden the MPC to push for a another hike in June. The data, released this morning has sent UK bond yields even higher, with 10-year yields up c. 15bps on the open this morning to 4.3%

ECB President Lagarde used an op-ed to remind that the ECB will continue to act to tame inflation. She said that they would bring inflation back to its 2% target and would bring interest rates to ‘sufficiently restrictive levels’ – indicating the ECB are not at those levels yet – and ‘keep them at those levels for as long as necessary’. Meanwhile Bundesbank President Nagel said the course of monetary policy tightening ‘has not yet come to an end’ and that ‘several rate hikes will still necessary…and (have to be) maintained at this level for a sufficiently long time’

There is still no white smoke on any ‘debt ceiling’ deal in the US. Another meeting with congressional republicans and White House officials ended seemingly without much movement from either side. This failure increases the likelihood that any agreement may come down to the wire next week ahead of the June 1st deadline

Economic activity in the Euro area and the UK was a little slower in May according to the flash PMIs with the Euro area composite PMI slipping to 53.3 from 54.1 in April while in the UK it dropped to 53.9 from 54.9. The picture was a bit better in the US with the composite PMI there improving this this month to 54.5 from 53.4

Economic data due today includes IFO sentiment index in Germany, house prices in the UK. We also get the FOMC minutes later, while President Lagarde from the ECB, Governor Bailey of the BoE and Waller from the Fed are due to speak