The US$ ended Friday on a generally soft note as traders took some profits on long positions in most of the major pairs, although Cable took a battering after a soft UK GDP data reading, putting a BOE rate hike in May even further into doubt. The dollar was not helped by another slide in US yields, which saw the 10Y fall back to 2.954% on Friday, and seems likely to hinder any further upside progress for now, at least until Wednesday’s FOMC Meeting. Stocks were steady while the metals were a bit higher on the back of the soft dollar. WTI was rangebound.
In terms of data on Friday, the US economy slowed in the first quarter to 2.3% annualised, a slowdown from 2.9% growth in Q4 but beat expectation of 2.0%, as consumer spending grew at its weakest pace in nearly five years, but a surge in wages amid tightening labor market conditions and lower tax rates suggested the setback is likely temporary. The PCE also beat expectations, with the Q1 Core PCE Prices Advance @ 2.5% v exp 2.4% and prior 1.9% , while the Q1 PCE Prices Advance came in @ 2.7%, v exp 2.6% & 2.7% prior reading. In the UK, Sterling took a big hit after the Q1 GDP grew just 0.1% qq, much worse than the expectation of 0.3% qq and the previous quarter’s 0.4% qq. It was also the weakest quarterly growth figure in five years and suggests that the BOE will not hike rates until later in the year – if at all.
It will be a busy week ahead with most of the focus being on the upcoming FOMC Meeting (Wed), which will be followed on Friday by the monthly US Jobs/NFP/Average Hourly Earnings data. Before then, today will look to the China Official Mfg/Non-Mfg PMIs, the German Retail Sales and the German CPI figures for guidance (exp 0.0%mm, 1.6%yy; HICP, exp 0.0%mm, 1.5%yy), ahead of the US session when we get the important PCE deflator as well as some regional Fed output. Tuesday will begin with the RBA Meeting although no change to policy is expected and it will be the statement that is in focus. Otherwise, Tuesday should be quiet, with it being the EU May-Day holiday although the US will get the ISM Mfg PMI/Prices Paid data. Wednesday begins with the NZ Q1 Jobs report, the Australian TD Inflation and the Caixin China Mfg PMI. The EU Q1 Preliminary GDP will then be released ahead of the FOMC Meeting and Statement, in what will be a busy session. Thursday will look to the EU CPI for guidance, while Friday will begin with the RBA Monetary Policy Statement and the Caixin China Services PMI, which come ahead of the EU Services/Composite PMIs and the US unemployment report. Have a good week.
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