Fed’s Janet Yellen’s speech awaited
Today all attention will be directed towards the US, with the nation’s second estimate of the first-quarter GDP and a report on consumer sentiment due for release later in the day. However, amidst all this, the spotlight will be on a speech by the US Federal Reserve (Fed) Chairwoman, Janet Yellen, for further indications on the timing of the next interest rate increase. During her two earlier public appearances, the Fed Chair largely maintained a dovish stance that the Fed will adopt only a gradual rate increase path amid widespread global financial risks and persistently low inflation.
The UK data docket remains empty for today. In the Euro zone, data showed that while French consumer confidence surprisingly improved in May, Italian business confidence, as well as consumer confidence, posted downbeat readings for May.
Pound Sterling – UK Markets
The Pound lost ground against the greenback and the shared currency yesterday after the second estimate of the UK’s Q1 GDP was revised lower on an annual basis. Meanwhile, on a quarterly basis, the nation’s GDP came in line with the flash estimate. It also marked the thirteenth consecutive quarter of positive growth since early 2013. Away from all this elation, the GDP breakdown was deeply troubling. It projected an economy that was solely reliant on consumer spending to sustain growth, with business investment, construction, manufacturing, and exports all in the decline. Additionally, a separate report indicated that mortgage approvals in the UK unexpectedly dropped in April. Earlier in the session, data showed that the morale among British consumers surprisingly improved in May. However, the next month's referendum on the European Union membership continued to drag on the nation’s economic outlook.
As the UK calendar remains devoid of any economic data releases today, investors will brace themselves for a slew of economic data points next week, including manufacturing and services PMI data.
US Dollar – US Markets
The greenback is trading lower against the shared currency and the Pound this morning, ahead of the US first quarter GDP’s second estimate, due later today, and is expected to post a steady reading. Market participants also await a speech by the Fed Chairwoman, Janet Yellen, for further indications on the timing of the next interest rate increase. Investor expectations for higher rates have grown after the release of the central bank’s April meeting minutes, wherein the Fed indicated that a June rate rise was on the table.
Yesterday, the US Dollar lost ground against the Euro after data showed weakness in the US business spending plans. While orders for long-lasting manufactured goods surged in April, core capital goods orders declined for the third consecutive month. However, the greenback trimmed some of its losses after the Fed Governor, Jerome Powell, suggested that a rate increase might happen “fairly soon” provided that the economic data holds up. In other economic news, last week’s US jobless claims dropped to a one-month low level and pending home sales accelerated to a decade-high level.
Euro – European Markets
The Euro is trading mixed against its major peers this morning. Data released earlier during the day showed that the French consumer confidence index surprisingly advanced in May to reach its highest level since October 2007, also its first increase in three months, as households were less pessimistic about their future financial situation and saving intentions. Further, consumer fears of unemployment abated considerably in May. On the other hand, Italian consumer and business confidence unexpectedly declined in May. Moving ahead, investors will look forward to two key economic indicators in the US, first quarter GDP and consumer sentiment index, along with Janet Yellen’s speech for further direction in the Euro – US Dollar currency pair.
Yesterday, data indicated that Italian retail sales declined for the first time in three months in March, at its fastest pace in nearly two years. However, on an annual basis, retail sales advanced for the second consecutive month. Meanwhile, Italy’s wage inflation remained flat in April.
Other Currencies – Highlights
The Japanese Yen is trading in a tight range against the US Dollar this morning. Japan’s consumer price index (CPI) came in slightly better than expected on the core measure in April. However, it was weaker as compared to the March reading, thus highlighting the Bank of Japan’s (BoJ) faltering battle to muster inflationary pressures. Deflation, a ubiquitous word in Japan, has dogged the economy for almost two decades. The BoJ shocked markets early this month by pushing interest rates into negative territory in a fresh effort to accelerate inflation to its 2.0% target. However, the move has not produced a favourable outcome yet.
Moving ahead, the direction in the US Dollar – Japanese Yen currency pair will be governed by the first quarter US GDP data and the Fed Chairwoman Janet Yellen’s speech, scheduled later in the day. Looking further into next week, a string of economic releases awaits investors with Japan’s retail trade, unemployment rate, industrial production and the Nikkei Manufacturing PMI data, due for release.