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Dollar rebounds after Fed’s Evans keeps alive possibility of June hike

USD

The dollar rebounded on Monday after one of the most doveish member’s of the FOMC, Charles Evans, said he could foresee a scenario in which the Fed lifted rates in June, as long as inflation expectations rose and the slow first quarter turned out to be a temporary blip. His comments varied from previous speeches in which he had emphasized the need to wait, even if he did reiterate his personal view that rates should not be lifted until 2016.

The greenback was also probably lifted as traders looked ahead to several key economic releases this week, with renewed optimism that they might spur a more hawkish view of Fed monetary policy expectations.

The release of the Minutes of the Fed’s April Policy Meeting, on Wednesday in one such event, followed by April CPI on Friday.

On the data front Monday saw the release of the NAHB Housing Market Index, which slid to 54 in May, falling below the 57 expected.

EUR

The euro weakened on Monday after investors feared the possibility of the Greek government, defaulting, following the leaking of a confidential memo which suggested the country would not be able to pay an IMF debt repayment on the 5th of June.

With very little real progress made during recent bailout-deal-negotiations the revelation of the memo increased pressure on finding a compromise, dimming the outlook for Greece.

Previously investors had been impressed by how the country had been able to meet its repayments with seemingly little trouble, however, there is now a hard deadline on the amount of time it can keep going without assistance.

In commentary on Monday the prime minister Alexis Tsipras said that he would still not sacrifice public sector pay or pensions in negotiations with creditors – it is now up to the opposing side’s negotiation teams to see if a bridge can be made spanning the political divide.

Commentary from ECB’s Yves Mersch suggested he was happy with the ECB’s QE programme, after praising its positive effects.

The ECB also published QE figures, which showed 122.4bn versus the 108.7bn last week. There was talk the bank might struggle to buy bonds in summer as liquidity was already thinning – although higher yields are helping offset that.

GBP

The pound traded overall weaker on Monday as a lack of data meant it was more the passive partner in pairs with news and data from counterparts generating movement rather than from the U.K.

What data there was showed a slight slow-down in house prices after Rightmove published their house price survey, revealing a 2.5% yoy rise in May from 4.7% in the previous year and a -0.1% fall mom, against 1.6% in April.

Top of the agenda tomorrow is inflation data, including CPI, which is forecast to rose 0.4% mom in April and 0.0% yoy.

JPY

The yen weakened by more than 50 points on Monday trading at 119.95 per dollar late in the New York session.

Japan’s machinery orders rose more than expected in March in a sign that Japanese companies may be increasing capital expenditure for future growth. Machinery orders are widely considered as a leading indicator of corporate capital investment.

Core orders increased 2.9% mom in March, compared with the 1.8% gain anticipated by analysts. Measured on an annualised basis, March orders rose 2.6%, better than the expected 2.0% rise, and following the 0.4% decline in the preceding month. For the January/March quarter, core machinery orders rose 6.3% qoq, with data showing April/June core orders expected to fall 7.4% qoq.

A separate report showed Japan’s industrial production declined for the second consecutive month in March dropping 0.8% mom in March, adding to signs the Japanese economy grew at a sluggish pace in the first of the year. Economists however, had expected a 0.3% fall. On an annualised basis production declined 1.7% in March largely due to a 1.9% decrease in shipments.

Japan’s Chief Economist Eiji Maeda, sees positive developments in consumer spending and said the economy continued to recover moderately and that Q1 GDP is likely to show Japan continues to expand above its potential growth rate.

USD

The dollar rebounded on Monday after one of the most doveish member’s of the FOMC, Charles Evans, said he could foresee a scenario in which the Fed lifted rates in June, as long as inflation expectations rose and the slow first quarter turned out to be a temporary blip. His comments varied from previous speeches in which he had emphasized the need to wait, even if he did reiterate his personal view that rates should not be lifted until 2016.

The greenback was also probably lifted as traders looked ahead to several key economic releases this week, with renewed optimism that they might spur a more hawkish view of Fed monetary policy expectations.

The release of the Minutes of the Fed’s April Policy Meeting, on Wednesday in one such event, followed by April CPI on Friday.

On the data front Monday saw the release of the NAHB Housing Market Index, which slid to 54 in May, falling below the 57 expected.

EUR

The euro weakened on Monday after investors feared the possibility of the Greek government, defaulting, following the leaking of a confidential memo which suggested the country would not be able to pay an IMF debt repayment on the 5th of June.

With very little real progress made during recent bailout-deal-negotiations the revelation of the memo increased pressure on finding a compromise, dimming the outlook for Greece.

Previously investors had been impressed by how the country had been able to meet its repayments with seemingly little trouble, however, there is now a hard deadline on the amount of time it can keep going without assistance.

In commentary on Monday the prime minister Alexis Tsipras said that he would still not sacrifice public sector pay or pensions in negotiations with creditors – it is now up to the opposing side’s negotiation teams to see if a bridge can be made spanning the political divide.

Commentary from ECB’s Yves Mersch suggested he was happy with the ECB’s QE programme, after praising its positive effects.

The ECB also published QE figures, which showed 122.4bn versus the 108.7bn last week. There was talk the bank might struggle to buy bonds in summer as liquidity was already thinning – although higher yields are helping offset that.

GBP

The pound traded overall weaker on Monday as a lack of data meant it was more the passive partner in pairs with news and data from counterparts generating movement rather than from the U.K.

What data there was showed a slight slow-down in house prices after Rightmove published their house price survey, revealing a 2.5% yoy rise in May from 4.7% in the previous year and a -0.1% fall mom, against 1.6% in April.

Top of the agenda tomorrow is inflation data, including CPI, which is forecast to rose 0.4% mom in April and 0.0% yoy.

JPY

The yen weakened by more than 50 points on Monday trading at 119.95 per dollar late in the New York session.

Japan’s machinery orders rose more than expected in March in a sign that Japanese companies may be increasing capital expenditure for future growth. Machinery orders are widely considered as a leading indicator of corporate capital investment.

Core orders increased 2.9% mom in March, compared with the 1.8% gain anticipated by analysts. Measured on an annualised basis, March orders rose 2.6%, better than the expected 2.0% rise, and following the 0.4% decline in the preceding month. For the January/March quarter, core machinery orders rose 6.3% qoq, with data showing April/June core orders expected to fall 7.4% qoq.

A separate report showed Japan’s industrial production declined for the second consecutive month in March dropping 0.8% mom in March, adding to signs the Japanese economy grew at a sluggish pace in the first of the year. Economists however, had expected a 0.3% fall. On an annualised basis production declined 1.7% in March largely due to a 1.9% decrease in shipments.

Japan’s Chief Economist Eiji Maeda, sees positive developments in consumer spending and said the economy continued to recover moderately and that Q1 GDP is likely to show Japan continues to expand above its potential growth rate.



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