US GDP beats expectation, dollar gains
31/Jul/2014 • Currency Updates•
The US economy took markets by surprise yesterday, as second quarter GDP figures showed an annualised 4% growth, far above expectation of 3%. The dollar immediately strengthened 0.3% against the pound and the euro, pushing to fresh 8 week and 12 month highs respectively.
Later in the evening the Fed tapered another $10bn from their monthly asset purchases and maintained interest rates at the same levels. Yellen was stoically dovish on the US economy however, downplaying the booming employment sector.
After a dreadful Q1 for both growth and employment, it seems the US economy has bounced right back and has to be vying with the UK for top spot in G7 growth figures. This week could turn into an excellent week for the dollar, if today’s jobless claims and tomorrow’s NFP can match yesterday’s growth figures.
The pound played second fiddle to the dollar yesterday, losing about 50 pips in value against the greenback. Trading against the euro was largely flat.
Consumer confidence took a surprise fall yesterday, according to the lasted GfK NOK survey. Consumers are feeling the least optimistic in 6 months, which is particularly surprising given the near 10 year high recorded only last month. It could well be just a blip, but there are some major UK events coming up that could cause medium term volatility. The Scottish independence referendum would have a huge impact on the UK and the pound should we have a ‘Yes’ vote, although the majority of polling up to now has suggested it will be a ‘No’, and the general election next May also adds a degree of uncertainty.
The only data out today is house prices for July.
Despite the bundle of EU data released yesterday, the only event that actually moved markets was US GDP. The single currency fell to fresh yearly lows against the dollar but was unchanged against the rest.
GDP in Spain expanded to 1.2% YoY in Q2, compared with 0.6% in Q1, while German inflation remained unchanged at 0.3%. An EU wide economic sentiment indicator increased by 4 basis points in July, suggesting businesses are getting bit more upbeat about the state of the economy.
The euro saw a gain against the Czech koruna, as the central bank in the Czech Republic committed to keeping interest at near zero for the foreseeable future, and promising to keep weakening against the euro to fight its worryingly low inflation.
Speaking of inflation; the EU releases its headline CPI figure for July this year. The bloc has stagnated on half a percent for two months on the trot now, investors are hoping it can perhaps do a little better this time.
Today we also have German retail sales and Unemployment, French consumer spending, Greek retail sales and Italian inflation
Rest of the world
Despite last ditch attempts at a resolution with its creditors, Argentina defaulted on $539m worth of bond payments yesterday. The consequences are unclear, as this is largely unprecedented in modern times. With no central bloc to turn to, such as Greece had in the EU, Argentina will either have to turn the IMF for help or embark on a massive private fundraising round.