Morning Report: 30 April 2018

April 30, 2018

GBP. Sterling continues to struggle and finished as the only G10 currency to lose out to the dollar on Friday. The latest driver for sterling weakness was the release of poor preliminary Gross Domestic Product figures for Q1 2018 caused most of the damage for sterling on Friday, with GDP coming in at 0.1% for the quarter – substantially below the Bank of England’s forecast of 0.3%, and the weakest level of growth in five years. Although UK Chancellor Philip Hammond attributed the disappointing growth figures to the recent poor weather conditions, the Office for National Statistics stated that the “Beast from the East” only had a marginal impact on the overall economic picture. A 3.3% fall in construction was the main contributor to this negative surprise, with construction falling 3.1% MoM in January (before the snow hit). With little data out this week for the UK, apart from Purchasing Managers Indices, the spotlight shifts back on to Brexit with EU Chief Brexit negotiator Michael Barnier visiting both Ireland’s today and a Brexit Cabinet meeting on Wednesday.

EUR. Euro had its resilience tested on Friday as it first traded on fresh three month lows against USD midday, only to rally afterwards, eventually closing just above where it opened. Again some soft inflation data was released, with the growth of German Import Prices being flat on the month of March, while also the Spanish Consumer Price Index disappointed in March with an annualized increase of 1.1%. This week is well-filled with data; Germany CPI Harmonized to the EU is released today at 13:00 BST, Wednesday sees Preliminary Q1 Eurozone GDP data released, Eurozone CPI Flash estimate is released on Thursday and Retail Sales data on Friday.

USD. Despite solid GDP numbers, the greenback looked a bit pale compared to other G10 currencies on Friday, making gains against sterling only. The US economy hasn’t run out of steam just yet, as Q1’s GDP figures came in strong on Friday at 2.3% annualised. Core Personal Consumption Expenditure, the Fed’s favoured method of measuring Inflation, is released today for March at 13:30 BST. Inflation is expected to increase 0.2% from February, with a 2% annualised increase forecast. With inflation picking up and growth remaining strong, this opens up the possibility of a 4th rate hike this year. The Federal Open Market Committee will issue a rate decision on Wednesday evening at 19:00 BST, accompanied by a Monetary Policy Statement. Non-Farms and other Labour market data are scheduled for Friday.

CAD. The loonie experienced a minor dip around noon on Friday, which may have woken up the currency as it embarked on a fierce rally afterwards. Today we have the Raw Material Price Index at 13:30 CET. Later in the week, we see Bank of Canada Governor Stephen Poloz speaking about Household Debt on Wednesday and the Trade Balance is released on Thursday.

UK news

  • Reuters: Rudd resigns after immigration scandal. Home Secretary Amber Rudd resigned on Sunday after Prime Minister Theresa May’s government faced an outpouring of indignation over its treatment of some long-term Caribbean residents who were wrongly labelled illegal immigrants.
  • Financial Times: Interest rate rises: when will the Fed act? Stronger US wages and inflation are clearing the way for the Federal Reserve to push ahead with its rate-raising campaign, with the central bank expected to tee up a further rate increase over the summer when it meets this week.
  • Wall Street Journal: Dollar Roars Back as U.S. Growth Story Wins Over World Markets. The dollar is rallying again after floundering for most of the past year, another sign that global growth momentum may be shifting back to the U.S. and away from other major economies.

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