US GDP is a shocker, dollar suffers

Tom Tong01/May/2014Currency Updates

GBP

London closed with sterling scuttling up across the board following US GDP and Eurozone data coming in lower than anticipated. A fairly flat week of trading in the FTSE was broken by the UK blue chip share index hitting a 7-week high, lifted by a rally in energy stocks; equally the FTSE was aided by the Fed maintaining QE at clips of $10B per month. A further insight into the labour market was delivered yesterday by the ONS (Office for National Statistics) as figures revealed that the number of people employed in so-called 0 hour contracts, is far higher than previously thought. An estimated 1.4M people are on 0 hour contracts with little to no job security. On the flip side, business confidence amongst business owners is at the highest levels seen since before the recession with the majority looking to hire fresh staff, so this could see a retracement.

The nationwide house prices index again came in higher than expected this morning, doubtless the media will again be calling a housing boom, although right now prices remain below the highs seen before the recession, so there is further room for price movement to the upside.

Manufacturing PMI, money supply and mortgage approvals are set for release this morning.

EUR

London closed with the euro rallying against the greenback, however trading against sterling was uneventful with the cross mostly bouncing between resistance levels. French consumer spending and Spanish GDP all came in line with expectations in the morning, the euro price barely shifted with the market waiting for the CPI figure.

Eurozone CPI came in showing a 0.7% YoY rise for April. These figures are consistent with the ECB stance of preferring to wait for more evidence prior to altering monetary policy; Draghi previously stated that the ECB is ready to use unconventional measures to counter the threat of deflation. The sound release gives the ECB leverage to stick to its waiting game.

No data today and it is Labour Day in France and Germany.

USD

A poor day for the greenback yesterday, London closed with the dollar wallowing at 3 week lows against a basket of its most traded currencies; it remains shaky after a shocking set of US GDP figures which came in well below expectations. Further dollar weakness over the Asian session was limited by the Asian market closed due to a public holiday.

It would appear the US economy has been hibernating over the winter. GDP experienced its slowest growth since 2012, growing a measly 0.1% in Q1, a country mile from the 2.6% that the market had called. However the Fed stayed calm in the face of an unexpected dip in the economy and maintained knocking $10B a month off the QE program, meaning that, if this remains unchanged, then QE will finish at the end of this year.

US ADP release today will give an insight into the likely NFP number, with the street calling a big number, also set for release is manufacturing and construction PMI and personal spending. Yellen will also speak later.

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Written by Tom Tong

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