King Dollar Continues to Reign Supreme

The dollar continues to march higher after upbeat data ahead of today’s Q1 GDP figure, while sterling continues to struggle for direction.

Previous Day's Market Highlights

The dollar continued its march higher on Thursday, spurred on by better than expected durable goods orders showing continued divergence between the US economy and the rest of the world. Orders, a useful leading indicator of future production, increased at an above-forecast 2.7% in March, the fastest pace since August 2018 and erasing February’s 1.6% decline. The core orders figure, excluding transportation, provided further good news, increasing at 0.4% last month, the fastest pace since October 2018, with both releases being positive for the US manufacturing sector. However, casting a slight shadow over the positive data was the weekly jobless claims figure, which rose by the most since 2017 to 230k last week - the highest level since 7th February. The dollar largely shrugged off this disappointment however, gaining as much as 0.3%, to hit its highest levels since March 2017 against a basket of peers. The dollar index however bounced off this resistance level, paring some of its gains, closing the day up by 0.15%.
 
Elsewhere, the pound continued to meander, with a lack of Brexit-related news or any economic data to stimulate volatility. Cable (GBP/USD) fell victim once again to the dollar strength, falling for the 8th consecutive day to the lowest level since 15th February, losing 0.1% over the day. Against the euro, sterling’s moves were more limited, adding a shade less than 0.1% over the day. The single currency also struggled against the dollar, losing 0.2% and briefly touching a 22-month low below $1.1120. Overnight, the yen has remained relatively stable, holding onto yesterday’s 0.5% gains against the dollar after relatively upbeat economic data. Despite the unemployment rate increasing to 2.5% in March, figures showed CPI inflation for the Tokyo region increasing at 1.4% on a year-on-year basis in April, with core inflation similarly upbeat, showing prices increasing at 1.3%. However, the data gives the BoJ little cause to move away from their cautious footing, with a large proportion of the increase due to rising oil prices rather than domestic inflationary pressures. 
 
In other markets, equities in both Europe and the US struggled on Thursday, the pan-European Stoxx 600 shed 0.25%, while the US benchmark S&P 500 closed modestly lower, losing 0.5%. Finally, oil prices were mixed, with Brent gaining as buyers suspended Russian imports while WTI trod water as an increase in US stockpiles weighed on prices. Brent added 0.55% over the day, recording a fresh 6-month high above $75bbl. In contrast, WTI fell 0.15%.

Currency Pairing 08:00 Today Vs 08:00 Yesterday Four-Week High Four-Week Low % Change
GBP/EUR 1.1590 1.1685 1.1512 1.48%
GBP/USD 1.2915 1.3132 1.2866 2.03%
EUR/USD 1.1145 1.1323 1.1117 1.82%
GBP/AUD 1.8365 1.8610 1.8093 2.78%
GBP/NZD 1.9415 1.9620 1.9242 1.93%
GBP/CAD 1.7415 1.7615 1.7314 1.71%

Today's Market Highlights

The week culminates with a relatively bare economic calendar, which once again lacks any major data releases from either the UK or eurozone. Instead, focus will fall with this afternoon’s US advance GDP figures for the first quarter - economists’ first chance to evaluate the pace of US growth in 2019. Expectations are for growth of 2.1% on an annualised, quarter-on-quarter basis, slightly below the growth seen in the final quarter of last year, though broadly in line with trend. Markets were initially expecting a relatively weak first quarter growth figure, with the impact of January’s government shutdown set to weigh on activity, though an unexpected increase in consumer spending and a continued tight labour market have allayed some of these fears and ratcheted up expectations for today’s release. 

There are a couple of other notable data points due from the US this afternoon, namely core PCE inflation and final consumer sentiment figures from the University of Michigan. The former is expected to show prices increasing at 1.6% on an annualised, quarter-on-quarter basis and, as the Fed’s preferred inflation gauge, should attract a healthy amount of attention. Consumer sentiment figures may be a little less impactful, with expectations for the index to remain broadly similar to the preliminary estimate of 96.9.  Today’s central bank calendar is also relatively bare with the only notable speaker being Swiss National Bank Chairman Jordan this morning. 

Meanwhile, over the weekend, Spain head to the polls in Parliamentary elections, though opinion polling shows little chance of any of the major parties gaining a majority. A possible hung parliament, and the prolonged uncertainty that this would cause, may weigh on the euro at the start of next week. 

Looking ahead to next week in more detail, the data calendar is busy, with focus likely to fall on the latest monetary policy decisions from the Federal Reserve (Weds) and the Bank of England (Thurs). Neither is expected to alter policy, though markets are likely to be given plenty of food for thought. For the Fed, focus will be on both the recent positive US economic data and the likely direction for future rate changes, with markets currently pricing a 57% chance of a rate cut by the end of 2019. Meanwhile, for the BoE, focus will continue to be on the prospects of a rate hike this year, with inflationary pressures likely to build as a result of the tight labour market and recent increase in oil prices - though Brexit-related uncertainties continue to make a 2019 hike unlikely. Other areas of interest include the BoE’s latest set of economic forecasts, along with Governor Carney’s assessment of the impacts of Brexit on the UK economy.

Away from central banks the calendar is busy, with highlights including the usual monthly set of PMI figures for most major global economies in addition to labour market reports from New Zealand (Tues) and the US (Fri). The PMI surveys will be closely watched as markets continue to gauge the health of the global economy and extent of the economic slowdown - though the surveys could merely cloud the picture further. Meanwhile, the US labour market report will attract significant attention, with focus likely to remain on average hourly earnings and further evidence of a tight labour market - though the headline nonfarm payrolls figure will, of course, attract a healthy amount of attention. Other notable data points next week include GDP figures from Canada (Tues) and CPI from the eurozone (Fri).

Finally, Japan begins a 10-day long holiday this weekend as the country transitions to a new Emperor. The long market holiday is likely to severely impact overnight liquidity and may cause sharp price swings during Asian trading next week.

Today's Economic Calendar

Time Currency Release Consensus Previous
1:30pm USD Advance Q1 GDP (annualised q/q) 2.1% 2.2%
1:30pm USD Core PCE (q/q - Q1) 1.6% 1.8%
3:00pm USD Final University of Michigan Consumer Sentiment Index 97.0 96.9