The United States Dollar is, quite surprisingly, trading stronger against most of its major peers even following a dismal first release of Q1 GDP this morning
Overview
Month-end flows with typical USD demand appear to be counteracting what would usually constitute a very negative move for the Buck. The advance reading for US GDP for the first quarter of this year showed that the domestic economy shrank by 0.3% from January through March, well below expectations of very slight growth and even further below Q4,s growth figure of 2.4%. Some economists, though, are speculating that this contraction may be exaggerated based on a record surge in imports as many businesses attempted to get ahead of the Trump administration’s tariff policies, the majority of which took effect at the beginning of this month in Q2. It’s possible, but in no way guaranteed, that such a negative GDP figure is already rebounding and the US is still not in a technical recession. Nonetheless, an economy in contraction, however temporary, is in no way a good sign and on the flip side is confirming many traders’ fears that Trump administration policies are having a decided negative impact.
In yet another fairly dire signal for the US economy, the advance release of Q1 GDP price index showed inflationary pressure are making a rapid return. The core PCE price index also grew more than expected, posting increases of 3.7% and 3.5% respectively. Expectations for inflation were already higher than in Q4, and both of these figures surprised to the upside. There were, however, two signals that could be taken as positive releases, as both personal consumption and inventories grew more than expected. Personal consumption ticked up 1.8% on expectations of 1.2% growth, and inventories grew 2.25%, perhaps mitigating some fears that consumers may enter a period of scarcity in conjunction with what could quite easily be called stagflation.
All told, though, markets are not entirely sure what to do with this release and the Dollar’s movement is fairly minimal. USD’s typical status as a safe haven, though called into question over the last few weeks, looks to be back in play this morning. Equity futures are showing a lower open today after Wall Street managed to post six consecutive sessions of gains.
What to Watch This Week…
- US Person Income & Spending, Wednesday 10AM
- US PCE Price Index MoM, Wednesday 10AM
- Bank of Japan Interest Rate Decision, Thursday
- Monex USA Online is always open
The complete Economic Calendar can be found here.
GBP ⇓
Pound Sterling is leading G10 losses against the Dollar this morning, sliding half a percent versus USD. The United Kingdom is facing its own set of lackluster economic releases, though it has managed to avoid technical recession territory thus far. Gilts edged higher, keeping GBP depressed today, though GBPUSD did manage to touch a three-year high price earlier this week. The Bank of England, meeting next week, is all but guaranteed to cut its key interest rate by 25 basis points, placing the BoE’s benchmark rate below that of the Federal Reserve.
JPY ⇓
Japanese Yen is sliding a bit more than most of its major peers against USD this morning following a poor economic data bucket from the US and ahead of the Bank of Japan’s meeting late tonight. The BoJ is largely expected to hold interest rates steady, and odds markets remain evenly split on the chances of any further interest rate hikes this calendar year. As US PCE price index showed a return of inflationary pressures this morning, odds of a rate cut from the Federal Reserve have decreased, so inaction from the BoJ may keep JPY under pressure through the end of this week.
