Euro zone yields mixed before US data, markets await details on US-China deal

Euro zone government bond yields were mixed on Wednesday as investors awaited US consumer price index data later in the session and details of the outcome of trade talks between the US and China.

US and Chinese officials agreed on a framework to put their trade truce back on track while offering little sign of a durable resolution to longstanding trade differences.

The Consumer Price Index report from the Labor Department on Wednesday could show the CPI less the volatile food and energy components rising by the most in four months.

Germany’s 10-year yield, the euro area’s benchmark, was up 0.5 basis points (bps) at 2.54%.

Money markets fully priced in a European Central Bank rate cut of 25 bps by December and an around 60% chance of the same move in September.

Two-year German yields rose 0.5 bps to 1.86%, while 30-year yields were flat at 3.00%.

Italian 10-year yields rose 2.5 bps to 3.48%, leaving the gap between German and Italian yields at 88.5 bps. The spread hit 86.70 bps on Tuesday its lowest level since February 2021.

(Reporting by Stefano Rebaudo, Editing by Andrew Heavens)

Oil steady near 7-week high as investors await details on US-China trade talks

LONDON – Oil prices edged up towards a seven-week high on Wednesday as markets assessed the outcome of US-China trade talks, yet to be reviewed by US President Donald Trump.

Brent crude futures were up 9 cents, or 0.1%, to USD 66.96 a barrel at 0802 GMT, while US West Texas Intermediate crude was up 18 cents, or 0.3%, to USD 65.16.

US and Chinese officials agreed on a framework to put their trade truce back on track and resolve China’s export restrictions on rare earth minerals and magnets, US Commerce Secretary Howard Lutnick said on Tuesday at the conclusion of two days of intense negotiations in London. The two countries are the world’s largest economies and oil consumers.

Trade-related downside risk in oil has been temporarily removed, although the market reaction has been tepid as it is not clear how economic growth and global oil demand will be affected, said PVM analyst Tamas Varga.

“… I think it removes some downside risks, particularly to the Chinese economy and steadies the ship for the US economy – both of which should be supportive for crude oil demand and the price,” said Tony Sycamore, a market analyst for IG.

On the supply side, OPEC+ plans to increase oil production by 411,000 barrels per day in July as it looks to unwind production cuts for a fourth straight month.

“Greater oil demand within OPEC+ economies – most notably Saudi Arabia – could offset additional supply from the group over the coming months and support oil prices,” said Capital Economics’ analyst Hamad Hussain in a note.

Later on Wednesday, markets will be focusing on the weekly US oil inventories report from the Energy Information Administration, the statistical arm of the US Department of Energy. EIA/S

US crude oil stocks fell by 370,000 barrels last week, according to market sources who cited American Petroleum Institute figures on Tuesday.

(Reporting by Enes Tunagur in London and Katya Golubkova in Tokyo. Editing by Christian Schmollinger and Mark Potter)

Gold prices steady as US-China trade talks unfold in London

Gold prices remained steady on Tuesday as investors monitored ongoing US-China trade discussions in London aimed at easing a trade dispute between the world’s two top economies.

FUNDAMENTALS

* Spot gold edged down 0.2% to USD 3,322.07 an ounce, as of 0032 GMT. US gold futures fell 0.4% to USD 3,341.90.

* High-level trade talks between the US and Chinese officials are extending into a second day, with discussions encompassing issues ranging from tariffs to rare earth restrictions. The dispute has raised fears of supply chain disruptions and slower global economic growth.

* US President Donald Trump said his administration was “doing well” in the negotiations and noted positive reports from the talks. Last month, both sides agreed to a temporary pause in tariffs, offering some relief to financial markets.

* China’s export growth slowed to a three-month low in May as US tariffs slammed shipments, while factory-gate deflation deepened to its worst level in two years, heaping pressure on the world’s second-largest economy on both the domestic and external fronts.

* Meanwhile, Americans’ anxiety about the future path of inflation eased in May, as they also grew more upbeat about the state of their personal finances, according to a report released on Monday by the New York Federal Reserve.

* Investors are also awaiting US inflation data on Wednesday that may adjust expectations for the timing of any rate cuts by the Fed.

* Safe-haven gold becomes more attractive during periods of geopolitical and economic uncertainty. It also tends to thrive in a low-interest rate environment as it is a non-yielding asset.

* Elsewhere, spot silver was unchanged at USD 36.72 per ounce, platinum fell 0.1% to USD 1,218.49, while palladium was up 0.2% to USD 1,076.22.

DATA/EVENTS (GMT)
0600	UK ILO unemployment rate April
0600	UK Claimant Count Unem Chng May
0600	UK HMRC Payrolls Change May

(Reporting by Anmol Choubey in Bengaluru; Editing by Rashmi Aich)

Japan to consider buying back some super-long government bonds, sources say

TOKYO – Japan is considering buying back some super-long government bonds issued in the past at low interest rates, two sources with direct knowledge of the plan said on Monday, underscoring its focus on reining in any abrupt rises in bond yields.

The move would come on top of an expected government plan to trim issuance of super-long bonds — such as those with 20-, 30- or 40-year maturities — in the wake of sharp rises in their yields.

Yields on super-long Japanese government bonds rose to record levels last month due to dwindling demand from traditional buyers such as life insurers, and global market jitters over steadily rising debt levels. The 30-year JGB yield reached as high as 3.185% on May 21.

In Japan, such bonds were also sold off as Prime Minister Shigeru Ishiba faced political pressure for tax cuts and higher spending ahead of an upper house poll in July, policies that could add to the country’s already huge public debt.

JGB yields fell after the report on possible buybacks on market relief the government might take action to address an over-supply of super-long bonds.

Of 172.3 trillion yen (USD 1.2 trillion) in scheduled sales of JGBs to the market in the current fiscal year through March, over 24 trillion yen would be in super-long bonds, with maturities of 20- to 40-years.

The Ministry of Finance, which oversees the government’s debt issuance, will reach a final decision on buybacks after holding meetings with bond market participants on June 20 and June 23, the sources said.

Buying back super-long JGBs would require budget approval and will likely take time, they said.

“Reducing new issuance of super-long JGBs alone probably won’t fix the problem of over-supply, so this would be a move in the right direction,” said Mari Iwashita, executive rates strategist at Nomura Securities.

The yield on Japan’s benchmark 10-year government note flipped after the report from an earlier rise to be down 0.5 basis points at 1.45% as of 0836 GMT. The 30-year bond yield trimmed an advance of as much as 4.5 bps to be up 1.5 bps at 2.89%.

The volatility in the JGB market has turned investors’ attention to whether the Ministry of Finance and Bank of Japan could take measures to tame rises in super-long yields.

Sources have told Reuters the BOJ will probably maintain its current bond-tapering programme running through March but consider slowing the pace of tapering from the next fiscal year. A final decision will be made at the BOJ’s next policy meeting on June 16-17, the sources said.

BOJ Governor Kazuo Ueda has said the central bank will be vigilant to the risk large swings in super-long bond yields could affect shorter-term borrowing costs and have a bigger impact on the economy.

Yields on government bonds with the longest maturities have risen sharply not just in Japan but also in the United States, where a credit downgrade from Moody’s and President Donald Trump’s tax-cut bill have helped cause investors to demand better returns on their bond holdings.

(USD 1 = 144.0300 yen)

(Reporting by Takaya Yamaguchi; additional reporting by Kevin Buckland and Makiko Yamazaki; Writing by Leika Kihara; Editing by David Goodman and Toby Chopra)

Oil prices hit multi-week highs amid US-China trade talks

NEW YORK – Oil prices hit multi-week highs on Monday, buoyed by a weaker US dollar, while investors awaited news from US-China trade talks in London in hopes a deal could boost the global economic outlook and subsequently fuel demand.

Brent crude futures settled 57 cents higher, or 0.9%, to USD 67.04 a barrel. During the session, the benchmark rose to USD 67.19 a barrel, the highest since April 28.

US West Texas Intermediate crude rose 71 cents, or 1.1%, to USD 65.29. The contract reached USD 65.38 a barrel during the session, the highest since April 4.

A weaker US dollar gave some support to oil prices, as the dollar index dropped 0.3%, making oil cheaper for holders of other currencies.

Last week, Brent rose 4% and WTI gained 6.2% as the prospect of a US-China trade deal boosted risk appetite for some investors.

“Much of this advance appears technically driven and such rallies can easily subside without new bullish headlines,” analysts at energy advisory firm Ritterbusch and Associates said in a note. “Much attention will be given to the ongoing US-China trade talks.”

US President Donald Trump and China’s leader Xi Jinping spoke by telephone on Thursday before US and Chinese officials met in London on Monday to calm trade tensions between the two nations.

A trade deal between the United States and China could support the global economic outlook and in turn boost demand for commodities including oil.

Monday’s talks could dampen the impact on prices of Chinese data releases, IG market analyst Tony Sycamore said.

Chinese export growth slowed to a three-month low in May as US tariffs curbed shipments while factory gate deflation deepened to its worst in two years, heaping pressure on the world’s second-largest economy at home and abroad.

“Bad timing for crude oil, which was testing the top of the range and knocking on the door of a technical break above USD 65,” Sycamore said, referring to WTI prices.

The data also showed that China’s crude oil imports declined in May to the lowest daily rate in four months as state-owned and independent refiners began planned maintenance.

The prospect of a potential China-US trade deal outweighed concern over the price impact from increased output by the OPEC+ group of oil producers next month.

The Organization of the Petroleum Exporting Countries’ oil output rose in May by less than the volume planned, a Reuters survey found, as Iraq made further cuts to compensate for earlier pumping above target and Saudi Arabia and the United Arab Emirates made smaller hikes than allowed.

OPEC pumped 26.75 million barrels per day last month, up 150,000 bpd from April’s total, the survey showed on Monday, with Saudi Arabia making the largest increase.

(Reporting by Stephanie Kelly in New York, Robert Harvey in London, Florence Tan in Singapore, and Colleen Howe in Beijing; Additional reporting by Ahmad Ghaddar in London; Editing by David Goodman, David Evans, Barbara Lewis, Rod Nickel, and David Gregorio)

Looming US Treasury debt auctions an important sentiment test

NEW YORK – US Treasury auctions of notes and bonds this week are even more in focus than usual as tests of market sentiment on US assets, and while investors look like keen buyers of short and medium-term debt, appetite at the long end is more dicey.

These once-routine auctions have become a focus for investors as a gauge of demand, both foreign and domestic, with the July 9 deadline for the 90-day pause on reciprocal tariffs fast approaching.

Aside from bills, the US Treasury will sell a total of USD 119 billion in three- and 10-year notes, as well as 30-year bonds. The latter will be closely watched for signs that bond investors are putting their foot down and rejecting countries with huge fiscal deficits and mountains of debt.

“We are now in an environment where investors are looking at…demand that could be dropping at a time when supply seems to be on the precipice of rising further,” said Zachary Griffiths, head of investment grade and macro strategy at CreditSights in Charlotte.

Bond vigilantes, seemingly back with a vengeance, have questioned fiscal profligacy around the world amid concerns US President Donald Trump’s trade war and tax cuts will fuel inflation, while the tariffs will additionally curb global growth and force governments to spend more.

At the same time, last month’s US credit rating downgrade by Moody’s is a stark reminder that the world’s largest economy is courting disaster with a USD 36 trillion debt pile.

On Tuesday, the Treasury will sell USD 58 billion in three-year notes, followed by USD 39 billion in 10-year debt on Wednesday, and USD 22 billion in 30-year bonds on Thursday. Overall, analysts expect these auctions to go smoothly.

“The trend in these auctions has been reassuring so far,” said Guneet Dhingra, head of US rates strategy at BNP Paribas, in New York. “Largely the auction numbers suggest that there has been no meaningful dent in both foreign and domestic demand.”

Last month’s three-year note auction showed solid results. Indirect bids, which include foreign central banks, took in 62% of the total issuance, lower than April’s numbers, but roughly in line with the average for the last 12 auctions.

Offshore investors, particularly foreign official buyers, typically gravitate toward shorter-term Treasuries, specifically those with maturities of less than five years, according to the latest US Treasury survey.

Jay Barry, head of global rates strategy at J.P. Morgan, wrote in a research note that foreign official institutions’ focus on the front end suggested that any rotation away from Treasuries “could be realized through letting holdings run off and not reinvesting, rather than selling securities outright.”

US 10-YEAR SUPPLY VS CPI

In the case of the 10-year note auction on Wednesday, the outcome is a little trickier to forecast, analysts said, given that it comes on the same day as the release of the US consumer price index data. However, based on auction statistics, there will be no shortage of buyers for the 10-year, analysts said.

Last month’s 10-year auction showed a sturdy outcome. Indirect bids took in about 76% of the total issue, higher than the 12-auction average of 72%.

“The primary driver of a buyer’s strike was thought to be the trade war and stepping back from the Treasury market,” Ben Jeffery, vice president, interest rates trading, at BMO Capital Markets, said in a podcast on Friday.

“Now…the opposite argument might be true, and that is: why would one preemptively pull back from the Treasury market, rather than demonstrate ongoing sponsorship for Treasuries as a negotiating tool? We have yet to see any clear evidence of foreign sponsorship pulling back from Treasuries.”

The US 30-year bond auction, meanwhile, could go either way and some analysts said they would not be surprised if it comes out weaker than expected given the spate of poor long-dated sales globally. That has led to the surge in yields on the back end, particularly US 30-year bonds, which hit 5.16% last month, the highest since October 2023.

“The 30-year is the poster child for all the market’s fiscal concerns,” said BNP’s Dhingra. “But if you look at the statistics available until April, you can see that the 30-year bond auction numbers have seen pretty stable demand from dealers.”

But last month’s 30-year auction was not well-received, picking up a yield that was higher than the expected rate at the bid deadline, suggesting investors demanded a premium to purchase the bond. Indirect bids were marginally lower than the 12-auction average. The 30-year bond also did not fare well at the April auction.

“Demand from foreign investors for 30-year bonds has probably plateaued,” said CreditSights’ Griffiths.

(Reporting by Gertrude Chavez-Dreyfuss; Editing by Alden Bentley and Andrea Ricci)

Foreign investors plough USD 19.2 billion into emerging markets in May, says IIF

NEW YORK – Foreigners added USD 19.2 billion to emerging market stocks and bonds in May after an April retrenchment, a banking trade group report found, with Chinese debt and ex-China stocks emerging as the most favored assets as the trade war temporarily cooled.

The May flows, as calculated by the Institute of International Finance (IIF), compare with a USD 3.7 billion outflow in April and a USD 6.6 billion inflow in May 2024.

Chinese debt took in USD 11.1 billion, while the country’s equities pulled in USD 1.4 billion. Outside of China, stocks funneled USD 7.0 billion – their first positive inflows after seven months of losses – while debt saw a USD 300 million outflow.

The Trump administration’s early April announcement of broad tariffs on imports, and subsequent delays to those while others were hinted or imposed, triggered a bout of volatility and risk aversion that hit emerging markets selectively.

Tariffs and trade remain high on the agenda as leaders of the G7 nations meet next week in Canada.

“The underlying investor tone remains cautious in light of ongoing global uncertainty,” said Jonathan Fortun, senior economist at the IIF, in a statement accompanying the data.

“The return of positive flows in May signals a modest shift in sentiment, but one that remains highly contingent on the global monetary backdrop. Investors are not abandoning EM, but they are rotating selectively within it.”

Asia took in a net USD 11.4 billion last month, much of which was absorbed by Chinese debt. Emerging Europe saw a net inflow of USD 5.1 billion, of which USD 3.9 billion came into debt portfolios.

Africa and the Middle East took in USD 1.6 billion, and Latin America came in last at USD 1.1 billion of portfolio inflows last month.

“Within the equity space, investors appear to be recalibrating exposure toward markets with credible domestic policy anchors and limited sensitivity to global supply chain disruption,” Fortun said.

Demand for local currency bonds remains high among non-residents according to the IIF report, especially in Asia, with market support in the form of real yields and stable monetary anchors.

Total emerging markets sovereign issuance remained low at USD 10.3 billion of new deals in May, according to the data.

“Much of the (debt) issuance came in the form of opportunistic deals from higher rated sovereigns. Market access continues to be limited for lower rated names, despite an improvement in global financial conditions,” Fortun said.

“The muted supply picture has reinforced technical support for existing debt and may explain the persistent bid for local paper.”

(Reporting by Rodrigo Campos in New York; Editing by Jan Harvey)

TREASURIES-US yields drop after weak jobs, services data

ADP report shows private payrolls increased by only 37,000 jobs

ISM services PMI drops to 49.9, indicating contraction

Markets price in 74% chance of Fed rate cut in September

Updates to afternoon US trading

By Chuck Mikolajczak

NEW YORK, June 4 (Reuters) – U.S. Treasury yields fell sharply on Wednesday, after labor market data came in weaker than expected, while a separate report on the services sector unexpectedly showed contraction.

The ADP National Employment Report showed private payrolls increased by 37,000 jobs last month, well short of the 110,000 estimate of economists polled by Reuters, after a downwardly revised rise of 60,000 jobs in April, sending yields lower.

Yields then extended their declines after the Institute for Supply Management said its non-manufacturing Purchasing Managers Index dropped to 49.9 last month, below the 52.0 estimate of economists polled by Reuters. The reading was the first below the 50 threshold, which indicates contraction of the services sector, and the lowest reading since June 2024.

In addition, the ISM’s measure of prices paid for services inputs rose to 68.7, the highest level since November 2022, from 65.1 in April.

“It still doesn’t seem clear that it’s time to cut rates yet, there’s still too much uncertainty, too many unknowns,” said JoAnne Bianco, partner and senior investment strategist at BondBloxx Investment Management in Chicago.

“We haven’t actually seen the tariffs really translate into what’s happening in terms of inflation.”

The yield on the U.S. 10-year Treasury note US10YT=TWEB fell 9.5 basis points to 4.365% after dropping to 4.349%, its lowest since May 9, and was on pace for its fourth decline in five sessions.

Labor market data is also expected throughout the week, culminating in Friday’s government payrolls report.

Markets have been volatile since U.S. President Donald Trump announced a slew of tariffs on countries around the globe on April 2, only to pause some and declare new ones, with the 10-year yield touching a 3-month high of 4.629% on May 22.

In the wake of the ADP report, Trump again called for Federal Reserve Chair Jerome Powell to lower interest rates in a social media post.

The yield on the 30-year bond US30YT=TWEB shed 9.7 basis points to 4.886%.

Washington doubled tariffs on imported steel and aluminum to 50% on Wednesday, the same day by which Trump had wanted trading partners to make their best offers to avoid other import levies from taking effect in early July.

Trump is expected to speak with Chinese leader Xi Jinping, days after Trump accused China of violating a deal to roll back tariffs and trade restrictions.

A closely watched part of the U.S. Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes US2US10=TWEB, seen as an indicator of economic expectations, was at a positive 48.6 basis points.

Many Federal Reserve officials have indicated a patient approach to determining the effect the levies may be having on prices, although they have also indicated rate cuts may still be possible this year.

Markets are pricing in a roughly 75% chance of the first cut of at least 25 basis points from the central bank this year at its September meeting, according to LSEG data.

The two-year US2YT=TWEB U.S. Treasury yield, which typically moves in step with interest rate expectations, declined 8 basis points to 3.877% after hitting a session low of 3.858%, its lowest since May 9.

The breakeven rate on five-year U.S. Treasury Inflation-Protected Securities US5YTIP=TWEB was last at 2.336% after closing at 2.389% on Tuesday.

The 10-year TIPS breakeven rate US10YTIP=TWEB was last at 2.307%, indicating the market sees inflation averaging about 2.3% a year for the next decade.

(Reporting by Chuck Mikolajczak
Editing by Rod Nickel)

((charles.mikolajczak@tr.com; @chuckmik.bsky.social;))

PRECIOUS-Safe-haven gold rises on weak data, simmering uncertainty

Trump calls China’s Xi tough, ‘hard to make a deal with’

US private payrolls post smallest gain in over two years in May

US service sector unexpectedly contracts in May

Dollar down 0.5%

Updates prices for market close

By Sherin Elizabeth Varghese

June 4 (Reuters) – Gold rose 1% on Wednesday, supported by a softer dollar and weak U.S. data, as investors grappled with mounting economic and political uncertainty.

Spot gold XAU= climbed 0.8% to $3,378.22 an ounce by 02:02 p.m. ET (1802 GMT), after rising as much as 1% earlier. U.S. gold futures GCcv1 settled 0.7% higher at $3,399.20.

The U.S. dollar index .DXY fell 0.5%, making gold cheaper for buyers holding other currencies, while benchmark U.S. 10-year Treasury yields US10YT=RR edged lower. USD/US/

“The U.S. services sector – two-thirds of the economy – contracting for the first time in a year has goosed gold a percent higher after bullion had shrugged off a weak though historically volatile ADP employment report,” said Tai Wong, an independent metals trader.

“A close back above $3,400 will prime a run for new all-time highs.”

The Institute for Supply Management said its non-manufacturing purchasing managers index dropped to 49.9 last month, the lowest reading since June 2024, while ADP data showed U.S. private employers added the fewest workers in over two years.

“There is considerable geopolitical uncertainty with Russia-Ukraine, Iran, Syria and China driving people to buy gold… and although traders may not expect gold to rise as quickly, there is still plenty of upside,” said Daniel Pavilonis, senior market strategist at RJO Futures.

U.S. President Donald Trump said his Chinese counterpart Xi Jinping was tough and “extremely hard to make a deal with”, just days after accusing Beijing of violating an agreement to roll back tariffs.

In addition, Washington doubled tariffs on steel and aluminum imports and urged trading partners to submit their “best offers” to avoid more import levies.

All eyes are on Friday’s U.S. payrolls report for clues on the Federal Reserve’s next move.

Gold, a safe-haven asset during times of political and economic uncertainty, tends to thrive in a low-interest-rate environment.

Spot silver XAG= was down 0.1% at $34.45, platinum XPT= rose 1.5% to $1,089.99, while palladium XPD= lost 1% to $1,000.55.

(Reporting by Sherin Elizabeth Varghese in Bengaluru; Editing by Shailesh Kuber and Pooja Desai)

((sherinelizabeth.varghese@thomsonreuters.com;))

POLL-Dollar to decline further on U.S. fiscal, growth and trade risks

reuters://realtime/verb=Open/url=cpurl://apps.cp./Apps/fx-polls?RIC=EUR= poll data

By Sarupya Ganguly

BENGALURU, June 4 (Reuters) – Falling demand for U.S. dollar-denominated assets will push the greenback lower in coming months, according to FX strategists surveyed by Reuters, as concerns mount about the U.S. federal deficit and debt.

U.S. President Donald Trump’s erratic tariff policies, along with the House of Representatives recently passing a tax-cut and spending bill that would add $3.3 trillion to an already-enormous $36.2 trillion debt pile, have many investors worried.

Long-term bond yields have soared on a rising ‘term premium’ – compensation for holding longer-duration debt – leading to swathes of asset outflows and a near-10% fall in the dollar against a basket of major currencies .DXY since mid-January.

Its usual close relationship with 10-year Treasury yields has also broken down.

Asked what would happen to demand for dollar-denominated assets in a May 30-June 4 poll, a near-90% majority, 59 of 66 FX strategists, said it would decline.

“It’s quite evident right now there is a ‘sell-America’ trade playing out, and how much dollar demand decreases depends on the extent to which U.S. growth is perceived to be hit by the current policies of the administration,” said Jane Foley, head of FX strategy at Rabobank.

“If the market is still anticipating the growth outlook will be undermined, the trend will be towards further dollar losses over the medium-term.”

Over 55% of analysts in a May Reuters poll also expressed concern about the dollar’s ‘safe haven’ status, up from only around one-third in April.

This month, over half of respondents upgraded their euro EUR= forecasts.

The common currency, currently $1.14, was predicted to hold steady in three months, gain about 1% to $1.15 in six and about a further 3% to $1.18 in a year.

Euro-dollar median forecasts recorded in the survey were the highest since November 2021. Only just in February, around one-third were expecting it to reach parity within a year.

But most of that has to do with the outlook for the dollar. A series of interest rate cuts this year from the European Central Bank while the Federal Reserve has stayed on hold would normally generate the opposite result on interest rate differentials.

“Over the summer, we’re expecting (U.S.) term premium risks on elevated fiscal concerns and hard labor market data starting to turn. That is a very negative combination for the dollar,” said Dan Tobon, head of G10 FX strategy at Citi.

“Our…target on euro-dollar has been $1.15, but we think it can get to $1.20. And that might happen sooner than we’re expecting if these catalysts do play out.”

Asked how a thinning dollar trade would evolve by end-June, half the strategists, 21 of 42, said there would not be much change from speculators’ current net-short position. Nineteen said there would be an increase in net-shorts, while two said decrease.

Asked which region would benefit the most from sustained dollar outflows, respondents mostly said Europe.

Despite a slight souring of sentiment owing to the Trump-led trade war, investors are still generally optimistic that infrastructure and defence spending plans, particularly in Germany, will revitalise the bloc’s long-sluggish economy.

“When you talk to clients in the European area, they feel like there’s a lot more potential positive catalysts for growth there – not just because of the money that will be spent on defence and infrastructure – but because there’s belief that’s actually the beginning of a lot of other structural changes,” Citi’s Tobon added.

Heightened uncertainty from rising U.S. inflation expectations – near their highest in at least four decades – has also effectively tied the Fed’s hands for the time being even though markets still expect two more cuts this year.

The ECB is expected to cut this week and possibly once more.

(Other stories from the June foreign exchange poll)

(Reporting by Sarupya Ganguly; Polling and analysis by Anant Chandak, Renusri K, Rahul Trivedi and Jaiganesh Mahesh; Editing by Ross Finley and Chizu Nomiyama )

((Sarupya.Ganguly@thomsonreuters.com;))

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