Written by Steven Dooley, Head of Market Insights, and Shier Lee Lim, Lead FX and Macro Strategist
Greenback hit by GDP drop
The US dollar, as measured by the USD index, fell from two-week highs overnight after a weakening in US GDP.
Preliminary GDP – the second of three March-quarter readings – fell from an advance reading of 1.6% to 1.3% in annualised terms.
The greenback’s largest falls were seen in Japan with the USD/JPY down 0.5% as the pair turned sharply from one-month highs – just below the levels that saw intervention from Japanese authorities last month.
The USD/CNH also saw a sharp reversal at technical resistance with the pair down 0.3%. The USD/SGD fell 0.2%.
The AUD/USD and NZD/USD both rebounded from recent lows. There was minimal impact on FX markets after former US president Donald Trump was found guilty of 34 counts of falsifying business records overnight.
USD/JPY turns ahead of Japan CPI
APAC currencies remain in focus today with Japanese inflation and Chinese purchasing manager index (PMI) numbers both due.
From Japan, any increase in inflation could spark renewed expectations of further rate hikes from the Bank of Japan and could provide support to the Japanese yen – pushing the USD/JPY further lower.
Chinese PMI numbers have recently seen a small, but gradual improvement with the manufacturing sector settling above the boom-bust 50 level for the year so far.
The improvement in growth hasn’t helped the Chinese yuan which has remained weak as markets continue to expect further rate cuts from the People’s Bank of China.
Key inflation reports due from Eurozone, US
Later, key inflation readings from Europe and the US are likely to drive activity in FX markets.
Eurozone annual headline inflation is forecast to rise from 2.4% to 2.5% while the core number is forecast to remain steady at 2.7%.
However, despite the forecast rise, the European Central Bank is still expected to cut rates next week, with the market pricing ascribing a 95% chance of a cut according to Refinitiv.
In the US, the personal consumption and expenditure reading – the Federal Reserve’s preferred measure of inflation – will be critical to the Fed’s ability to cut interest rates this year.
While US CPI has remained stuck around 3.5%, the PCE numbers have settled around 2.5% — close to the Fed’s 2.0% inflation target.
USD/JPY turns near major highs
Table: seven-day rolling currency trends and trading ranges
Key global risk events
Calendar: 27 – 31 May
All times AEST
*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.
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