US yields drop as receding inflation keeps Fed cuts intact this year

NEW YORK – US Treasury yields fell on Friday after data showed US inflation stabilized in April, in line with expectations, suggesting the Federal Reserve’s interest rate cut plans later this year remained intact.

Analysts said though the Fed will rely on several months of data showing inflation is firmly decreasing before starting the easing cycle.

The personal consumption expenditures (PCE) price index, the Fed’s preferred measure of inflation, rose 0.3% last month, data showed, matching the unrevised gain in March. Monthly inflation readings of 0.2% over time are needed to bring inflation back to target.

In the 12 months to April, the PCE price index rose 2.7% after climbing by the same percentage in March. Economists polled by Reuters had forecast it would climb 0.3% on the month and 2.7% on a year-on-year basis.

“It’s nice to see core PCE not re-accelerating further from the hotter-than-expected numbers that we saw earlier in the year,” said JoAnne Bianco, investment strategist and partner at BondBloxx Investment Management, which manages 24 fixed income exchange-traded funds totaling about USD 3 billion.

“That’s a step in the right direction,” Chicago-based Bianco said, adding though that it was not enough.

Consumer spending, which accounts for more than two-thirds of US economic activity, increased by 0.2%, but down from a downwardly revised 0.7% rise in March.

The benchmark 10-year yield slid 4.6 basis points (bps) to 4.508% after the data. On the month, the 10-year yield declined 17.6 bps, on track for its worst monthly drop since December.

US 30-year yields were down 3.4 bps at 4.651%, sliding 13.8 bps in May, the largest monthly fall since December as well.

On the front end of the curve, the two-year yield, which reflects the US rate move expectations, slipped 1.7 bps to 4.912%. For the month, two-year yields were down 15.9 bps, again the biggest monthly drop since December.

In addition, the Chicago purchasing managers’ index (PMI), a barometer of business activity in the US Midwest, came in at 35.4 vs a 41.0 estimate. May’s reading was the lowest in four years.

The Chicago PMI data further pushed Treasury yields lower.

After the PCE and Chicago PMI reports, fed funds futures slightly increased the chances of a rate cut in September to around 55.3%, according to LSEG’s rate probability app. It was slightly below 50% earlier this week.

The futures market is still pricing in just one rate cut of 25 bps this year.

“This one PCE reading is meaningless. It won’t change Fed Chair (Jerome) Powell’s stance at the upcoming meeting. The up and down of the monthly inflation readings lends to caution,” wrote Gregory Faranello, head of US rates at AmeriVet Securities, in a research note.

“It’s completely fair and honest to admit the Fed’s not even sure. And the recent interviews, q/a (question and answer), and speeches lend themselves to that. A lot remains out of the hands of central bank policy in our view.”

The US yield curve, meanwhile, marginally reduced its inversion on Friday. The spread between US two- and 10-year yields, widely viewed as a predictor of economic recessions, was at minus 37.9 bps, compared with minus 38.3 bps late on Thursday. The inversion went as deep as minus 41 bps following the Chicago PMI report.

(Reporting by Gertrude Chavez-Dreyfuss; Editing by Josie Kao and Jonathan Oatis)

‘Bothersome’ rebound in US yields casts shadow on stocks at record highs

NEW YORK – Treasury yields are on the rise again, presenting a potential obstacle to a US stock rally that has taken major indexes to record highs.

The benchmark 10-year Treasury yield, which moves inversely to bond prices, hit nearly 4.64% this week, its highest level in about a month. It was at 4.55% late on Thursday.

The interplay between stocks and yields has been a key dynamic in markets this year. A sharp rise in yields sent equities tumbling last month, though they came roaring back when data showed cooling inflation and the Federal Reserve suggested it was unlikely to raise interest rates again to tamp down consumer prices. The S&P 500 is up about 10% year to date.

Yet some investors see reasons for yields to keep rising. US growth remains strong, stoking worries the Fed could spark an inflationary rebound if it eases monetary policy too early. One key test comes with Friday’s release of the personal consumption expenditures price index (PCE), which the Fed tracks to determine the pace of inflation.

Persistent concerns about the mounting US fiscal deficit and weak Treasury auctions have also kept yields elevated, as an expected deluge of government debt around the world is set to test investors’ appetite in June.

Robert Pavlik, senior portfolio manager at Dakota Wealth, believes stocks could become more turbulent if the 10-year Treasury yield hits the 4.7% touched last month. So far, the S&P 500 has slipped just over 1% from its record closing high set in May.

At the moment, rising yields are “bothersome, not troubling,” Pavlik said. “If we move higher than (4.7%), then it’s more of a concern that it’s going to have a bigger impact on earnings and potential growth going forward.”

Higher yields translate to higher borrowing rates for consumers and businesses, which could weigh on the economy and companies’ bottom lines.

Elevated yields also pose greater investment competition for stocks, as Treasuries are seen as far less risky because they are backed by the US government.

“If you can earn around 5% in an instrument with a lot lower volatility relative to equities, that should make sense to a lot of investors at these levels,” said Sameer Samana, senior global market strategist at the Wells Fargo Investment Institute.

The WFII recommends investors overweight bonds versus stocks, and is targeting the S&P 500 to end 2024 in a range of 5,100 to 5,300. The index was last at 5,235.48.

The rise in bond yields also could limit the valuation stocks are able to reach, Samana said. The S&P 500 was trading at a price-to-earnings ratio of 20.6, based on analysts’ profit estimates for the next 12 months, according to LSEG Datastream. That is well above the historic average of 15.7.

Other measures also suggest stocks are becoming less attractive.

The equity risk premium, which compares the S&P 500 earnings yield against the 10-year Treasury yield, is around its lowest level since mid-2002, said Keith Lerner, co-chief investment officer at Truist Advisory Services.

“Rising Treasury yields have certainly created more headwinds for the stock market recently,” Matt Maley, chief market strategist at Miller Tabak, said in a note on Thursday.

Fed policymakers have urged patience on rate cuts, saying they need to see several months of data to be sure inflation is heading back down to the central bank’s 2% target. Futures that track the fed funds rate show investors pricing in just 35 basis points of rate cuts this year, according to LSEG data, from more than 150 basis points priced in January.

Some factors that have driven rates higher, such as a robust US economy, can also support stocks. One demonstration of the economy’s strength came as companies reported earnings in recent weeks: S&P 500 earnings were on track to have climbed 8% in the first quarter from a year earlier, according to LSEG IBES.

That is one reason why Tony Roth, chief investment officer at Wilmington Trust, believes the rise in yields has not been “particularly conclusive” for equities so far.

But persistently strong inflation could be problematic, Roth said. “That starts to present a risk for equities and points to higher yields for a much longer period of time.”

(Reporting by Lewis Krauskopf; Editing by Ira Iosebashvili and Richard Chang)

Gold rebounds as dollar, bond yields retreat after US data

Gold prices eked out gains on Thursday as the dollar and Treasury yields slipped after US economic data raised hopes that the Federal Reserve is firmly on track to cut interest rates this year.

Spot gold was up 0.2% at USD 2,344.19 per ounce as of 2:02 p.m. ET (1802 GMT). US gold futures settled 0.1% higher at USD 2,366.5.

“We’re seeing a little bit of bargain hunting after the dip in prices. The US dollar index is trading with some pretty solid losses right now, so that’s a bullish factor for gold and silver,” said Jim Wyckoff, senior analyst at Kitco Metals.

“Also yields are down a little bit and also the sell-off in the stock market in the past couple of days is also a bullish element for the metals markets.”

The dollar slipped 0.4% after hitting a two-week high earlier in the session, making gold more attractive for other currency holders.

US Treasury yields slid after data showed the world’s largest economy grew more slowly than previously estimated in the first quarter.

US jobless claims, meanwhile, rose in the latest week.

Focus now shifts to the Personal Consumption Expenditures (PCE) price index, the Fed’s preferred measure of inflation, due on Friday that could shed more light on Fed’s interest rate cuts timing.

According to the CME FedWatch Tool, traders now see about a 52% chance of a Fed rate cut by September. Lower interest rates reduce the opportunity cost of holding non-yielding gold.

Elsewhere, spot silver fell 2.1% to USD 31.3 after hitting an over 11-year high last week.

“There is some safe-haven demand for silver, but its industrial demand has been propelling its price upwards, thanks to robust manufacturing activity,” said Russell Shor, Senior Market Specialist at Tradu.

Platinum lost 0.8% to USD 1,027.47 and palladium slipped 1.7% to USD 949.46 after falling to a four-week low earlier in the session.

(Reporting by Brijesh Patel, Daksh Grover, and Harshit Verma in Bengaluru; Editing by Vijay Kishore and Alan Barona)

Dollar lower ahead of key inflation data Friday

NEW YORK – The dollar fell on Thursday after revised data showed that gross domestic product, the broadest measure of economic activity, grew at a slower pace than previously expected in the first quarter.

The Commerce Department reported the US economy grew at a 1.3% annualized rate from January through March, down from the advance estimate of 1.6% after downward revisions to consumer spending.

The downgrade of first-quarter growth followed recent softness in readings of retail sales and equipment spending, which had contributed to easing bets on Federal Reserve interest rate cuts.

“This is definitely something that the Fed was looking for. All of these figures coming in below expectations … is taking a bit of heat off of the Fed,” said Helen Given, FX trader at Monex USA.

A two-day, 15-basis point jump above 4.6% for long-term Treasury yields had helped push the dollar to a two-week high on Wednesday by boosting the attractiveness of US debt.

The index tracking the US currency against its major peers climbed to 105.18 overnight, the highest since May 14, but was last down 0.37% at 104.74.

The release of the Personal Consumption Expenditures price index – the Fed’s preferred measure of inflation – on Friday could provide further indications on how the central bank might proceed with interest rate cuts later this year.

That readout could “move the needle a little bit more than today’s GDP data,” said Eugene Epstein, head of structuring for North America at Moneycorp.

Expectations for Fed interest rate reductions this year have been pared back amid signs of sticky inflation, most recently with a surprise uptick in consumer sentiment in data on Tuesday.

The dollar JPY was down 0.53% against the Japanese yen at 156.805 after hitting a one-month high of 157.72 the previous day.

Market players suspect Japan intervened to prop up its currency at the end of April and early May, which may be confirmed by data out on Friday.

“Japanese authorities intervened near this level on May 1, and the market now views 158 as a critical point for potential intervention,” said Charu Chanana, head of FX strategy at Saxo Bank.

The euro was up 0.3% at USD 1.083 after dropping 0.5% on Wednesday to touch a two-week low of USD 1.0789 overnight. Sterling rose 0.26% to USD 1.2734 after also falling 0.5% on Wednesday.

Price data for the eurozone is due on Friday, following a stronger-than-expected April inflation reading for Germany on Wednesday.

In cryptocurrencies, bitcoin last rose 2.28% to USD 68,940.33.

(Reporting by Hannah Lang in New York; additional reporting by Harry Robertson in London and Kevin Buckland in Tokyo; Editing by David Holmes, Sriraj Kalluvila, and David Evans)

Oil falls as US reports surprise fuel build, weak demand

NEW YORK – Oil prices fell for the second consecutive session on Thursday, after the US government reported weak fuel demand in the country and a surprise jump in gasoline and distillate fuel stockpiles.

Brent crude futures fell by USD 1.74, or 2.1% to settle at USD 81.86 a barrel. US West Texas Intermediate crude futures fell by USD 1.32, or 1.7%, to USD 77.91 a barrel.

US crude stocks fell more than expected last week as refiners ramped up to their highest utilization rates in over nine months, data from the US Energy Information Administration showed. However, there was a surprise jump in gasoline and distillate fuel inventories as demand weakened even as output rose.

“Weakness in gasoline markets have continued to drag down the rest of the oil complex,” Alex Hodes, oil analyst at brokerage StoneX, wrote on Thursday.

Analysts had expected the US Memorial Day holiday on May 27, the start of the US summer driving season, would boost fuel demand. Yet EIA’s measure of gasoline demand slipped about 2% from the prior week to 9.15 million barrels per day.

“I was looking for a draw in gasoline, in particular, ahead of the holiday weekend but when refiners are cranking it out, that is too much to drain product inventories,” said John Kilduff, partner at Again Capital.

“The gasoline demand is still a good number, even though I would have expected that to be up closer to 9.5 (million bpd) going into the last holiday weekend,” he said.

US gasoline futures fell more than 2% to a 3-month low of USD 2.40 a gallon, while ultra-low sulfur diesel futures settled at an over 11-month low.

Further pressuring oil prices, investors’ risk-appetite has been subdued by the prospect of delayed monetary easing in the US and Europe, analysts at financial brokerage ActivTrades said. “Fear trading” is dominating financial markets ahead of Friday’s US consumer price index data, they wrote to clients.

Oil investors are also cautious ahead of an OPEC+ meeting this weekend. The producer group will decide whether to extend, deepen or unwind supply cuts.

Soft fuel demand and rising global oil inventories may help convince OPEC+ producers, which include the Organization of the Petroleum Exporting Countries (OPEC) and allies including Russia, to maintain supply cuts when they meet on June 2, OPEC+ delegates and analysts say.

(Reporting by Paul Carsten in London, Katya Golubkova in Tokyo, and Jeslyn Lerh in Singapore; Editing by Ana Nicolaci da Costa, Jason Neely, Elaine Hardcastle, David Gregorio, and Daniel Wallis)

Nasdaq falls 1%; Salesforce shares weigh on tech

US stocks ended lower on Thursday, with the Nasdaq falling more than 1% and technology shares leading declines after a disappointing Salesforce forecast.

Investors also digested data showing the economy had grown slower than previously expected in the first quarter. A separate report showed weekly jobless claims rose more than expected.

Salesforce shares plunged 19.7%, a day after the company forecast second-quarter profit and revenue below Street estimates due to weak client spending on its cloud and enterprise business products.

The S&P 500 technology sector dropped 2.5% and was the biggest drag on the benchmark index. The communication services sector fell 1.1%, while the rest of the S&P 500 sectors ended higher.

The Commerce Department report showed the economy grew slower in the first quarter than previously estimated, after downward revisions to consumer and equipment spending and a key measure of inflation ticked lower, ahead of Friday’s personal consumption expenditure report for April.

“Normally you’d expect the market to rally off of a downward revision to GDP because it signals the economy is moderating, the Fed’s job is done, we can get rate cuts. That’s not the reaction we’re getting today,” said Mark Hackett, chief of investment research at Nationwide.

“So I’m a little surprised but not that surprised simply because after the six week (rally) that we’ve had, it’s pretty healthy and expected to see some consolidation or sideways move for a while.”

The S&P 500 lost 31.47 points, or 0.60%, to end at 5,235.48, while the Nasdaq Composite lost 183.50 points, or 1.08%, to 16,737.08. The Dow Jones Industrial Average fell 330.06 points, or 0.86%, to 38,111.48.

US Treasury yields dipped following the day’s data, while chances for an at least 25-basis-point interest rate reduction in September edged up to 50.4%, from 48.7% before the data, according to the CME Group’s FedWatch Tool. Bond yields had hit multi-week highs earlier in the week.

After the close, Dell Technologies shares fell more than 12% as the company reported quarterly results. The stock ended the regular session down 5.2%.

During the regular session, HP shares jumped 17% after it posted better-than-expected second-quarter revenue.

Tesla rose 1.5% after Reuters reported the company was preparing to register its ‘Full Self-Driving’ software in China.

Retailer Best Buy shares shot up 13.4% after beating forecasts for quarterly profit, while department-store chain Kohl’s slumped 22.9% after cutting its annual sales and profit forecasts.

Advancing issues outnumbered decliners by a 2.57-to-1 ratio on the NYSE and by a 1.41-to-1 ratio on the Nasdaq.

The S&P 500 posted 14 new 52-week highs and 10 new lows while the Nasdaq Composite recorded 51 new highs and 95 new lows.

Volume on US exchanges was 12.10 billion shares, compared with the 12.39 billion average for the full session over the last 20 trading days.

(Reporting by Abigail Summerville in New York and Johann M Cherian and Lisa Mattackal in Bengaluru; Editing by Pooja Desai and Aurora Ellis)

China PMIs, Tokyo CPI eyed; month-end mood dims

An Asian economic calendar on Friday overflowing with top-tier indicators awaits investors, who look set to close out the week and the month on a downbeat note as worries grow over the strength of the US and global economies.

Investors often cheer ‘bad news’ on the US economy by bidding up risk assets on the view that the Fed will be forced to ease policy. Equally, ‘good news’ often drags stocks and bonds lower because rates may have to stay higher for longer.

Investors’ reaction to revised US GDP figures on Thursday followed neither playbook – bad news was bad news. Slower GDP growth in Q1 pushed stocks, the dollar, and bond yields lower, and relatively dovish comments from New York Fed president John Williams failed to provide much comfort.

The MSCI World, MSCI Asia ex-Japan, MSCI emerging market, and Japan’s Nikkei 225 indexes are all poised for their second weekly loss in a row. Rising bond yields, and now US growth concerns, are taking their toll.

And could the US tech fairy tale be starting to fade too?

Financial conditions certainly seem to be biting. According to Goldman Sachs, emerging markets, Chinese, and global financial conditions are the tightest in a month. Little wonder, perhaps, that investors are taking some chips off the table as the month-end approaches.

It may be month-end on Friday, but there will be no rest for Asian markets. Not if the economic calendar is anything to go by.

China’s official purchasing managers’ index reports for May, a raft of top-tier indicators from Japan including retail sales, industrial production and Tokyo inflation, and first quarter GDP from India and Taiwan are all on tap.

China’s PMIs are expected to show that manufacturing activity in May grew at a similar pace to the previous month when it barely managed to stay expansionary, reinforcing the fragile nature of the recovery in the world’s No.2 economy.

China’s economy blew past expectations to post growth of 5.3% in the first quarter, and a string of April indicators including factory output, trade, and consumer prices suggest it has successfully navigated some near-term downside risks.

But the crisis-hit property sector remains a major drag, deflationary pressures persist, and capital is just as liable to be flowing out of the country than in.

Core inflation in Japan’s capital, meanwhile, is expected to have picked up in May to 1.9% from a two-year low of 1.6% in April, and India’s economy likely grew at a 6.5% rate in the January-March quarter – its slowest pace in a year – due to weak demand.

Here are key developments that could provide more direction to markets on Friday:

– China official PMIs (May)

– Tokyo inflation (May)

– India GDP (Q1)

(Reporting by Jamie McGeever; Editing by Josie Kao)

Wall Street ends lower amid rate concerns, higher bond yields

NEW YORK – US stocks fell on Wednesday amid further gains in Treasury yields and concern over the timing and scale of possible interest rate cuts from the Federal Reserve.

The Dow fell more than 1% and hit its lowest level in nearly a month. All of the S&P 500 sectors ended lower as well, with rate-sensitive utilities among sectors with the biggest declines.

The yield on the benchmark 10-year US Treasury note hit four-week highs at 4.6%, extending Tuesday’s gains, after weak debt auctions.

“You continue to see this rise in bond yields, which is pressuring equities… It’s a continuation of this unstable, uneven recovery,” said James Abate, fund manager of the Centre American Select Equity fund.

Conflicting expectations on the size and the timing of potential interest rate cuts have kept the market on edge since the start of this year.

Sticky inflation and hawkish comments from central bankers have forced traders to temper down rate cut expectations to only one by November or December, per the CME FedWatch Tool, from multiple cuts expected at the start of the year.

Stocks held their losses following the release of the Beige Book, a US Fed survey. It showed US economic activity continued to expand from early April through mid-May, but firms grew more pessimistic about the future while inflation increased at a modest pace.

The S&P 500 lost 39.09 points, or 0.74%, to 5,266.95 while the Nasdaq Composite lost 99.30 points, or 0.58%, to 16,920.58. The Dow Jones Industrial Average fell 411.32 points, or 1.06%, to 38,441.54.

The main focus this week will be on Friday’s release of April’s Personal Consumption Expenditure data – the Fed’s preferred inflation gauge.

The Nasdaq retreated after closing above the 17,000 mark for the first time on Tuesday, while the small-caps Russell 2000 index fell 1.5%.

After the closing bell, shares of Salesforce were down more than 15% as the company reported results and forecast second quarter revenue below estimates. Salesforce shares ended the regular session up 0.7%.

During the regular session, shares of Marathon Oil advanced 8.4% after ConocoPhillips said it would buy the company in an all-stock deal for a little over its USD 15 billion market value. ConocoPhillips fell 3.1%. The energy sector dropped 1.8%.

Airline stocks declined, led by American Airlines, which declined 13.5% after the company cut its second-quarter profit forecast.

Dick’s Sporting Goods rose 15.9% after lifting forecasts for annual sales and profit, while Abercrombie & Fitch shot up 24.3% on raised annual sales growth forecast.

On the Nasdaq, declining issues outnumbered advancers by a 2.78-to-1 ratio and a 5.25-to-1 ratio on the NYSE.

The S&P 500 posted 7 new 52-week highs and 16 new lows while the Nasdaq Composite recorded 45 new highs and 149 new lows.

Volume on US exchanges was 12.24 billion shares, compared with the 12.38 billion average for the full session over the last 20 trading days.

(Reporting by Abigail Summerville in New York and Johann M Cherian and Lisa Pauline Mattackal in Bengaluru; Editing by Shinjini Ganguli and Aurora Ellis)

Gold slips on higher dollar, Treasury yields; US PCE data in focus

Gold prices fell on Wednesday as a stronger dollar, higher bond yields and hawkish comments from a Federal Reserve official weighed on market sentiment as it braced for the release of US inflation data.

Spot gold fell about 0.8% to USD 2,342.80 per ounce by 1348 p.m. ET (1748 GMT). US gold futures GCcv1 settled about 0.6% lower to USD 2341.20.

“We got a small recovery going in the dollar index. Also, the Fed speakers have recently been quite hawkish. The treasury yields are continuing to rise. So just a lot of these headwinds weighing on the market,” said Phillip Streible, chief market strategist at Blue Line Futures.

The dollar rose 0.4% against its rivals, making gold more expensive for other currency holders, while the benchmark US 10-year Treasury yields climbed to a near one-month peak.

Minneapolis Fed Bank President Neel Kashkari said on Tuesday the US central bank should wait for significant progress on inflation before cutting interest rates.

Traders are looking out for the US core personal consumption expenditures (PCE) price index report — the Fed’s preferred measure of inflation — due on Friday to get more cues on the timing and scale of rate cuts.

US consumer confidence unexpectedly improved in May after deteriorating for three consecutive months amid optimism about the labor market, a survey showed on Tuesday.

“Higher-than-expected PCE data, which raises the prospects of higher-for-longer US rates, may force spot gold to retest the psychological USD 2,300 number for support,” said Han Tan, chief market analyst at Exinity Group.

Silver edged up about 0.2% to USD 32.16 per ounce after hitting an 11-year high last week.

“Silver’s dual role as a precious and industrial metal means it has also benefited from the current environment of reasonably strong economic growth and high inflation,” said Frank Watson, market analyst at Kinesis Money.

Platinum dipped over 2% to USD 1,040.75 per ounce, and palladium fell about 0.9% to USD 964.67.

(Reporting by Brijesh Patel, Daksh Grover, Ashitha Shivaprasad and Rahul Paswan in Bengaluru; Editing by Shailesh Kuber and Ravi Prakash Kumar)

Yen hits 4-week low, dollar up ahead of key inflation data

NEW YORK – The dollar rose on Wednesday, boosted by higher US bond yields ahead of key inflation data later in the week, and strengthened against the Japanese yen.

The dollar reached as high as 157.715 yen on Wednesday, edging closer to levels that led to bouts of likely intervention from Tokyo at the end of April and early May.

It was last at 157.665 yen, up 0.3% on the day.

“I think it’s just going to continue to be a grind higher for dollar/yen, all across yen pairs as well,” said Brad Bechtel, global head of FX at Jefferies. “It’s basically tiptoeing its way back towards that 160 level.”

Slightly softer US consumer price inflation data this month weakened the dollar across the board. Since then, US Treasury yields have resumed their climb, with the benchmark 10-year yield at its highest in almost four weeks at 4.57%.

The main drivers were Tuesday’s lackluster auction of two- and five-year notes that raised doubts about demand and data showing US consumer confidence unexpectedly improved in May.

The US dollar index was last up 0.43% at 105.11. The US core personal consumption expenditures (PCE) price index report – the Federal Reserve’s preferred measure of inflation – will be released on Friday. Expectations are for it to hold steady on a monthly basis.

Apart from the Japanese yen, most foreign currencies have rallied against the US dollar since mid-April, said Marc Chandler, chief market strategist at Bannockburn Global Forex. “I’m thinking that that move is over and we should look for a dollar rebound.”

The Aussie dollar was down 0.47% at USD 0.6618, even after Australian consumer price inflation unexpectedly rose to a five-month high in April, adding to risks that the next move in local interest rates might be up.

Also in the mix for the yen was the carry trade, which involves borrowing in a low-yielding currency to invest in higher yielders.

“The yen remains under considerable downward pressure with carry appetite elevated due to low FX volatility,” Derek Halpenny, head of research global markets EMEA at MUFG, said in a note, citing elevated levels in euro/yen and sterling/yen.

The euro dropped to a near two-year low on the pound of 84.84 pence, driven by strong German regional inflation data.

It recovered after nationwide German data showed inflation rose slightly more than expected to 2.8% in May, though that is unlikely to change expectations for a European Central Bank rate cut next month.

The common currency was last down 0.49% at USD 1.0804.

The pound weakened to USD 1.2702 a day after hitting a two-month high.

(Reporting by Hannah Lang in New York; Additional reporting by Alun John in London and Ankur Banerjee in Singapore; Editing by Jacqueline Wong, Kevin Liffey, Sriraj Kalluvila, Mark Heinrich, and Richard Chang)

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