Weekly Review May 1
The ECB left monetary policy on hold and French opinion polls continued to suggest that Macron would win the May 7th Presidential election run-off. In this environment, commentary from President Trump tended to dominate market moves for much of the week and tended to enhance volatility given a lack of consistency in his rhetoric.
US consumer confidence declined to 120.3 for April from a revised 124.9 the previous month, although this was still the second-strongest reading for 15 years.
Initial jobless claims increased to 257,000 in the latest week from 243,000 previously while the headline increase in durable goods orders was below consensus forecasts, although the impact was limited.
The advance first-quarter GDP reading was weaker than expected with an annualised increase of 0.7% compared with consensus forecasts of 1.3% and 2.1% previously. GDP was undermined by a sharp slowdown in consumer spending.
President Trump unveiled his tax-cutting plans with calls for reductions in personal and corporate tax rates. There was also a call for tax relief of the repatriation of foreign earnings, although with no details.
The dollar index registered a slight net loss for the week as a whole in choppy conditions.
UK GDP growth for the first quarter of 2017 was weaker than expected at 0.3% from 0.7% the previous quarter and compared with expected growth of 0.4%.
The government budget deficit fell to a nine-year low of £52bn for 2016/17, although the decline was boosted by one-off factors.
Sterling overall moved higher for the week with GBP/USD at six-month highs above 1.2900 as the UK currency continued to gain support on valuation grounds. After rallying sharply early in the week, EUR/GBP drifted lower.
The ECB left interest rates on hold following the latest policy meeting with the main refi rate at 0.0%. In his press conference, President Draghi was more optimistic surrounding the outlook for growth and confident that downside risks had diminished. He was, however, less confident surrounding the outlook for higher inflation and insisted that there was no need for any shift in forward guidance at this time.
Despite Draghi’s comments, Euro-zone inflation was stronger than expected with an increase to 1.9% for April from 1.5% while the core rate increased to 1.2% from 0.7% which was the highest reading for over three years.
Trade tensions were an important focus during the week as President Trump threatened to pull out unilaterally of NAFTA instead of looking to re-negotiate the deal with Canada and Mexico. Both the Mexican peso and Canadian dollar dipped sharply lower following the threat, although the peso recovered ground as Trump reversed his position and called for further dialogue.
Australian inflation data was marginally lower than expected, although the overall impact was limited ahead of this week’s interest rate decision. Commodity currencies overall lost ground due to trade concerns.
The Bank of Japan left monetary policy on hold following the latest policy meeting with the bank still targeting long-term interest rates around zero with the interest rates paid on bank deposits remaining at -0.1%. The yen lost ground for the week as defensive demand faded.
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