Optimism not yet ready to translate into policy
The euro had a bit of roundabout trip yesterday as ECB President Draghi initially signalled a brighter outlook for the Eurozone economy before, almost in the same breath, maintaining that the level of stimulus would not be reduced anytime soon. EUR/USD spiked into the 1.09s before settling back into the 1.08s with GBP/EUR now back to the mid-1.18s.
The press conference was definitely one for the purists with little else of note announced. We and the wider analyst community will continue to focus on inflation pressures in the coming months to see what happens next for Eurozone monetary policy.
US GDP set to slip on seasonal adjustments
All eyes will be on the UK and US today ahead of their latest GDP announcements. Both currencies traded erratically yesterday with GBP taking a flyer in the morning session for little reason and the USD being forced to pare some of its gains following another warning to North Korea over a “major, major conflict” should diplomatic solutions fail.
Today’s US GDP announcement is likely to show growth slowing on the quarter albeit due mainly to seasonal factors. GDP is expected to fall from 2.1% annualised in Q4 to 1.0% in Q1. We think that whatever is released at 1.30pm is going to be revised but it might be worth watching the Presidential Twitter feed to see exactly what the big man thinks of it.
UK GDP set to show extent of High St pain
Similarly here in the UK the focus on GDP will be made uber-political by the less than 6 week run into the general election on June 8th. Economic correspondents yesterday were expressing their surprise that Chancellor Hammond was not doing briefings on the GDP release as per usual.
Last Friday’s UK retail sales announcement confirmed that the High St is coming under pressure from higher inflation and lower wage settlements, while investment has also slowed. Given this has been a trend since the beginning of the year we expect the UK GDP at 09.30 will be 0.3% on the quarter compared to the 0.7% in Q4. The consensus is for a rise of 0.4%. Once again in the era of Brexit, growth is not the issue but more the sustainability of it in the longer term.