Today’s first quarter US GDP report is expected to confirm a slowdown in growth, largely hurt by a weather induced slowdown in the nation. However, with the US economy steadily recovering from its dismal beginning to the year, the Fed is expected to persist with trimming its asset purchases in its policy meeting concluding today. Meanwhile, against the backdrop of the ECB possibly adopting unconventional tools to quell fears of deflation in the region, today’s inflation report will be closely followed for hints on the policy that the central bank might adopt in the near future.
With currency markets awaiting a host of data from Europe and the US, yesterday’s UK GDP data seemingly had a limited impact on Sterling against the majors.
Pound Sterling – UK Markets
Sequentially, the UK economy grew 0.8% during the first quarter of 2014, though less than market expectations, mainly due to a slowdown in domestic services activity. Initially, Sterling dropped against its peers but the weak GDP print failed to undermine the Pound as it recouped losses later in the session. Furthermore, another report indicated that consumer confidence in the UK improved to nearly a seven year high, supported by recent encouraging data. Both the reports thereby suggested that the UK recovery continues to remain on path. Against the backdrop of positive macroeconomic data lately, the BoE is unlikely to change its monetary policy for the foreseeable future as consumer price inflation still hovers below its target rate.
With no major macroeconomic data at home today, Sterling is range bound against its major counterparts. In the session ahead, sentiment in the Pound-US Dollar pair will be determined by the Fed’s monetary policy outcome and first quarter GDP figures. Tomorrow’s manufacturing and mortgage approvals data in the UK will attract market attention as both are expected to further strengthen views that the domestic economic recovery remains on track.
US Dollar – US Markets
The greenback advanced against the single currency in yesterday’s trading session as softer than expected German inflation data heightened speculation that the ECB might be inclined to ease its monetary policy in the near future.
Meanwhile, the US Dollar is trading in a tight range against most of the major currencies this morning as traders brace for an eventful trading session ahead. Today’s domestic GDP numbers are likely to show that the economy grew at a slower pace, mainly pressured by unfavourable weather conditions that disrupted most of the activities during the first quarter of 2014. Despite a slowdown in the housing sector recovery, the US economy appears to have rebounded adequately from the winter chill that would keep the Fed’s stimulus taper on track. Markets expect the Fed to announce another $10 billion cut to its bond-buying programme today. However, a forward guidance on the monetary policy will be limited in the absence of the post-meeting press conference. Also, today’s ADP employment figures will keenly watched ahead of non-farm payrolls report due later this week.
Euro – European Markets
An unexpectedly soft German consumer price inflation report dragged the Euro lower against its peers in yesterday’s trading session. However, losses in the Euro against the US Dollar were limited yesterday after data released in the US came in lower than market expectations. Meanwhile, data released earlier today indicated that Spanish inflation rose as expected for April. Going forward, today’s Euro area inflation data is likely to sway market sentiment, especially with yesterday’s German inflation data escalating the possibility of a lower than expected print from the common currency bloc.
Data released earlier today indicated that German annual retail sales unexpectedly dropped for March. However, German labour market remained stable, as the number of unemployed people in Germany dropped more than expected, while the unemployment rate remained unchanged for April. The single currency is range bound against the majors as the mixed data failed to provide direction to the common currency this morning. Meanwhile, a raft of important macro data from the US along with the Fed policy meeting outcome will be keenly eyed for further direction.
Other Currencies – Highlights
The Japanese Yen is trading higher against the US Dollar this morning after the Bank of Japan left its monetary policy stance unchanged and indicated that the nation remains on track to achieve its 2% inflation target in 2015. However, in its latest semi-annual outlook report, the central bank lowered its 2014 growth estimate to 1.1% from 1.4% announced in January 2014 citing the impact of sales tax hike as one of the key risks to the economy. Meanwhile, monthly industrial production in Japan rebounded for March, though it is expected to slowdown in coming months as the April sales tax hike might result in a drop in demand for goods.
With lack of decisive triggers later in the week, apart from the domestic unemployment data, the Yen-US Dollar pair is likely to chart movement in accordance to a raft of macro data in the US during the week along with today’s US Fed monetary policy outcome.