Post date: 29/04/2019 17:00
Stronger-than-expected growth and housing data out of the US drove the dollar higher against every single major currency worldwide last week, with the exception of the Japanese yen. The US economy expanded by 3.2% annualised in the first quarter of this year, much stronger than the 2.0% expected and a considerably faster pace than in Q4 2018.
The dollar bid against the euro was helped by disappointing German confidence data, although we note that a gap is developing in the Eurozone between weak survey numbers and generally stronger actual economic data. Emerging market currencies had a rough week, with the Korean won and the Colombian peso leading the way down on bad economic news and a sharp fall in oil prices later in the week.
This week will be unusually busy. In the Eurozone, we’ll be getting first quarter GDP numbers on Monday and flash inflation data on Friday. The Federal Reserve meets on Wednesday, followed by the key US payrolls report on Friday. Finally, the Bank of England meeting on Thursday means that there will be a market-moving event every day this week, except for Tuesday.
Now that Brexit negotiations have been punted into the summer, the Pound more-or-less follows in lockstep the Euro's moves against world currencies.
Last week was fairly barren in terms of macroeconomic data out of the UK, with one eye instead on developments this week. Thursday's Bank of England meeting is unlikely to add anything new to the mix, as the MPC holds the line both on policy and its forward-looking statements. There has been talk that member Michael Saunders could vote for a surprise hike, although we think this is unlikely. Expect Sterling to continue to trade in line with the Euro over the short term.
A dichotomy is developing in the Eurozone between weak survey numbers (PMIs, last week’s IFO) and stronger economic data, such as industrial production. We think the low expectations for both first quarter GDP numbers and flash inflation may set up a potential upward surprise and a corresponding positive reaction in the Euro.
The massive short positioning in the common currency that we see in the markets could provide further fuel for a Euro rebound.
First quarter growth surprised strongly to the upside, although a temporary boost from an inventory build explained about half the difference between the consensus number and the actual data. This week is an extraordinarily busy one, the Federal Reserve meets on Wednesday, no change in policy is expected, and we think the statement will be very aseptic and give as little information on the Fed's thinking as possible. The key to the payroll report out on Friday will be to see whether the upward trend in wages continues.