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German Ifo Business Sentiment At Record High; GDP Growth Improves

A record high business sentiment, a one-year high economic growth and a six-year high growth in the private sector signal strong positive momentum of the German economy, the biggest in the euro area.

As companies were upbeat about their future amid the improving current situation, the business sentiment index strengthened to a record high 114.6 from a revised 113.0 in April, the Munich-based Ifo institute reported Tuesday.

Ifo business confidence score reached its highest level on record since 1991. The reading was expected to rise marginally to 113.1 from April's initial estimate of 112.9.

The largest euro area economy expanded 0.6 percent in the first quarter, the most in a year on spending, investment and exports, a detailed report from Destatis confirmed earlier in the day.

Elsewhere, the purchasing managers' survey suggested that the German private sector grew at the sharpest rate in over six years in May, driven by manufacturing activity.

Today's strong German data add to the evidence that, not only the German economy, but the entire Eurozone economy could become the positive growth surprise of 2017, Carsten Brzeski, an ING DiBa economist, said.

The development in the business confidence index combined with other key economic indicators, points to economic growth of 0.6 percent in the second quarter, Ifo said. Economic activity in Germany remains very brisk, the think tank added.

The Ifo current conditions indicator came in at 123.2, up from 121.4 in April. This was also above the forecast of 121.0.

Likewise, the expectations index improved to 106.5 in May from 105.2 in April. Economists had forecast the index to rise moderately to 105.4.

Aided by the European Central Bank's relaxed monetary policy stance and a recovery in Western Europe, the German economy is going full steam ahead, Joerg Kraemer, a Commerzbank economist, said. For 2017 overall, the economist still expects 1.6 percent growth.

In its monthly report released on Monday, the Bundesbank said that the growth is set to continue in the spring.

According to Destatis data, GDP growth accelerated from 0.4 percent expansion seen in the fourth quarter.

On a yearly basis, the calendar-adjusted growth eased slightly to 1.7 percent from 1.8 percent a quarter ago. Annual growth figure also matched the provisional estimate published on May 12.

The expenditure-side breakdown of GDP revealed that household spending grew 0.3 percent, slightly faster than the 0.2 percent expansion a quarter ago. Likewise, growth in government spending improved to 0.4 percent from 0.3 percent.

Gross capital formation declined 0.5 percent, in contrast to the 2.5 percent growth in the fourth quarter.

Exports advanced 1.3 percent, but slower than the 1.7 percent expansion in the previous quarter. Similarly, imports climbed only 0.4 percent after rising 2.5 percent.

PMI survey showed that the pace of private sector expansion accelerated for the third time in four months to a 73-month record in May, reflecting the sharpest increase in manufacturing output since April 2011, IHS Markit said.

The composite output index rose unexpectedly to a 73-month high of 57.3 in May from 56.7 in April. The expected reading was 56.6.

The flash manufacturing PMI climbed to 59.4, while it was forecast to drop to 58.0 from 58.2 in April. The indicator signaled the strongest performance since April 2011.

On the other hand, the services PMI declined to 55.2 in May from 55.4 in April. Economists had forecast the indicator to rise marginally to 55.5.

Loonie Little Changed After Canada Wholesale Sales

Statistics Canada has released Canada wholesale sales for March at 8:30 am ET Tuesday. Following the data, the loonie changed little against its major counterparts.

The loonie was worth 1.5111 against the euro, 82.53 against the yen, 1.0114 against the aussie and 1.3462 against the greenback around 8:32 am ET.

Loonie Mixed Ahead Of Canada Wholesale Sales

Statistics Canada releases Canada wholesale sales for March at 8:30 am ET Tuesday. Ahead of the data, the loonie traded mixed against its major counterparts. While the loonie retreated from early highs against the aussie, yen and the greenback, it rose against the euro.

The loonie was worth 1.5119 against the euro, 82.47 against the yen, 1.0115 against the aussie and 1.3474 against the greenback as of 8:25 am ET.

Eurogroup Aims For Greece Deal In June

Eurozone finance ministers hope to reach a deal on Greece's debt relief and release another tranche of bailout funds to the country in their June meeting, as they failed to reach an agreement on the matter with the International Monetary Fund on Monday.

Greek lawmakers approved a reforms package last Thursday that includes pension cuts and tax hikes as demanded by the country's creditors to pave the way for the disbursement of bailout funds totaling more than EUR 7 billion and to begin talks on debt relief.

Discussions over providing more bailout funds had stalled after a review mission to Athens returned in December without reaching a deal. The country is in dire need of bailout cash to meet debt repayment of more than EUR 7 billion due in July, or risk default.

Welcoming the progress made by Greece, Eurogroup President Jeroen Dijsselbloem said on Monday, "I think we are close to formally closing the second review, with a positive outcome."

That would open up discussion on debt sustainability, which was already explored in depth on Monday by euro area finance ministers and the IMF.

"At this point, we have not reached an overall agreement on that part of our discussion," Dijsselbloem said.

"We will try to come to an definite conclusion in the next Eurogroup meeting which will be in 3 weeks time."

The next Eurogroup meeting is scheduled to be held on June 15 in Luxembourg.

Greece has to implement 140 reform measures ranging from tax to privatization to secure funds and debt relief. The government must also adopt additional budgetary measures in 2019.

As of now, the country has completed 110 of the 140 measures, European Union Economic Affairs Commissioner Pierre Moscovici said.

There was a profound and detailed discussion on debt, he noted.

"We did not conclude but we advanced," Moscovici said. "We will now work to conclude a good deal on June 15th."

The IMF, which has sought debt relief for Greece, has stayed away from the latest bailout as it seeks assurance from the EU regarding the sustainability of the country's massive debt pile.

IMF's Head of the European Department Poul Thomsen said on Tuesday that both sides did make progress in debt talks, but "we are not quite there yet".

U.S. Dollar Falls Amid Risk Appetite; Political Woes Weigh

The U.S. dollar drifted lower against its most major counterparts in European session on Tuesday, as the demand for safe-haven assets waned in the wake of improved risk sentiment following upbeat economic reports from Eurozone, while lingering worries over U.S. political turmoil also weighed.

The latest controversy emerge from a media report that the U.S. President has requested two top intelligence officials in March to help him push back against the FBI's probe into possible collusion between the Trump campaign and Russian government.

The Washington Post reported Monday that Trump pressed National Security Agency chief Michael Rogers and Director of National Intelligence Dan Coats to dismiss any evidence of collusion in the 2016 Presidential election.

Persistent controversies over links between the Trump administration and Russia in Presidential campaign stoked uncertainty about the government's ability to deliver fiscal stimulus.

The 10-year Treasury yield fell 2 basis points to 2.25 percent. Yields move inversely to bond prices.

Traders look forward to the release of the Fed minutes on Wednesday for further hints about a rate hike in June. Other key economic data include new home sales due today, existing home sales on Wednesday, weekly jobless claims and international trade on Thursday, followed by GDP, durable goods orders and consumer sentiment on Friday.

Eurozone private sector logged the fastest growth for six years in May, flash data from IHS Markit showed. The flash composite output index came in at 56.8, unchanged from April's six-year high while economists expected the index to fall slightly to 56.7.

French private sector grew at the sharpest pace in six years in May, with the headline index climbing to a 72-month high of 57.6 in May from 56.6 in April.

The greenback showed mixed performance in the Asian session. While the currency rose against the pound, it held steady against the euro and the franc. Against the yen, it fell.

The greenback edged down to 0.9702 against the franc, off its early high of 0.9745. Continuation of the greenback's downtrend may see it challenging support around the 0.96 region.

The greenback held steady against the euro, after falling to a 6-1/2-month low of 1.1268. If the greenback extends fall, it may locate support around the 1.14 level.

Flash data from IHS Markit showed that Eurozone manufacturing Purchasing Managers' Index rose to a 73-month high of 57.0 from 56.7 in April. The expected score was 56.5.

The flash composite output index came in at 56.8 in May, unchanged from April's six-year high. The score was forecast to fall slightly to 56.7.

The greenback weakened to 1.3456 against the loonie, a level not seen since April 24. Further weakness may take the greenback to a support around the 1.32 mark.

Extending early fall, the greenback slid to more than a 4-week low of 0.7045 against the NZ dollar. The next possible support for the greenback is seen around the 0.715 area.

The greenback fell back to 0.7508 against the aussie, a pip short of its Asian session's near 3-week low of 0.7509. On the downside, the greenback may target 0.76 as the next support level.

On the flip side, the greenback edged up to 111.32 against the yen, off its early 5-day low of 110.86. If the greenback extends rise, 112.00 is likely seen as its next resistance level.

Preliminary data from IHS Markit showed that Japan's manufacturing activity expanded at the weakest pace in six months in May.

The Nikkei Flash Manufacturing Purchasing Managers' Index, or PMI dropped to 52.0 in May from 52.7 in April.

Although the greenback staged a brief decline to 1.3001 against the pound from an early 4-day high of 1.2953, it failed to hold course on the back of the strength of the latter. The pair finished Monday's trading at 1.2999.

Data from the Office for National Statistics showed that the UK budget deficit increased in April.

Public sector net borrowing excluding public sector banks increased by GBP 1.2 billion from previous year to GBP 10.4 billion in April, this was the highest April borrowing since 2014.

Looking ahead, U.S. new home sales for April and Markit's flash manufacturing PMI for May as well Canada wholesale sales for March are set for release in the New York session.

At 3:00 pm ET, Minneapolis Fed President Neel Kashkari participates in a panel discussion about building economic well-being through home-ownership at the Center for Indian Country Development, in Minneapolis

Philadelphia Fed President Patrick Harker speaks about the economic outlook at the Harvard Club, in New York at 5:00 pm ET.

UK Retail Sales To Rise Marginally Again In June: CBI

British retail sales are expected to rise marginally again in June but growth is set to remain below its long-term average, the Quarterly Distributive Trades Survey from the Confederation of British Industry showed Tuesday.

The retail sales balance fell to +2 percent in May, well below the expected level of +31 percent.

Retailers expect sales volume to pick up pace a little next month, with balance improving to +6 percent in June.

Nonetheless, retailers expect their overall business situation to deteriorate over the next three months.

"Retail sales flattened out this month, as the bounce in April unwound," Alpesh Paleja, CBI Principal Economist, said.

"It's clear that households are increasingly feeling the pinch, as rising inflation pushes down on real earnings. Taken together with higher import cost pressures from a weaker pound, this is creating a challenging environment for retailers," said Paleja.