NZD bounces off one week lows amid softer US data

Key Movers

Price Action among major currencies was varied Monday with the USD finding support against the euro and GBP while giving up ground to the yen, NZD and AUD. Softer than anticipated Purchasing Manager Survey reports across the US and Europe elevated concerns surrounding the strength of the global economy.

PMI data showed activity across both European manufacturing and service sectors contracted in June as the cumulative impact of persistent rate hikes begins to show. European bonds trended lower, dragging UK gilt yields off an early rally, while US treasuries moved lower early in sympathy before finding support on elevated risk aversion.

With the euro falling to a one-week low, the yen found support, stabilising after a series of losses leading into last week's close. Reports the Bank of Japan (BoJ) is considering large-scale increases to its inflation forecast helped bolster yen demand amid hopes officials will move off outdated yield curve controls. With the BoJ set to meet later this week, we expect little change in policy outlook, with officials set on maintaining a program of support.

Our attentions turn now to German IFO surveys and US consumer confidence ahead of the Fed and ECB policy decisions. We expect both will lift rates by 25 basis points, but Monday’s PMI print suggests past rate hikes are beginning to take effect and may allow European Policy makers the room to move toward a data-dependent backdrop when assessing future rate hikes.

The tone and guidance from the weeks' central bank updates will prove key in driving near-term direction.