Daily Forex Fundamental Overview

Fundamental Analysis

EUR

“No matter how you look at it, the momentum for the German economy is positive at the moment.”

- Deutsche Postbank AG

Unemployment in Germany, the Euro zone’s most powerful economy, dropped to its lowest level on record in March of this year, the Federal Labour Agency in Nuremberg said on Tuesday. As country’s economy is returning back as the region’s powerhouse, its labour market is showing clear healthy signs. Unemployment rate decreased to as low as 6.4%, even though analysts projected the indicator to remain unchanged at the previous mark of 6.5%. The total number of people out of work fell by 15,000 to 2.8 million, also better than estimated 12,000. In addition to that, Germany’s business and consumer confidence is gaining ground, meaning that the country should register a solid growth in the first quarter of this year. Bundesbank, the country’s central bank, pointed out in its latest monthly report that German GDP has probably increased sharply during first three months of 2015.

In the meantime, consumer prices in the single currency area remained in red in March, still being affected by oil prices that fell considerably during past nine months. Annual inflation was released at –0.1%, thus posting a positive change on a monthly basis, up from –0.3% in February. Alongside, the core reading stayed flat at 0.6%. Moreover, unemployment rate in the Euro area was published worse than estimated as it stayed close to the record high level at 11.3% in February.

USD

“I expect that, unless incoming economic reports diverge substantially from projections, the case for raising rates will remain strong at the June meeting.”

- Jeffrey Lacker, Richmond Fed President

Jeffrey Lacker, the President of the Federal Reserve Bank of Richmond, speaking at the Greater Richmond Chamber of Commerce’s Spring Regional Forum on Tuesday, said that he expects the Fed to raise interest rates as soon as June of this year. He admitted that the strong case of June’s hike should be broadly supported by solid economic growth and rising inflation. The latter indicator has been temporarily weakened by a sharp decline in oil prices; therefore, there is likely to be no significant long-term effect from that. Mr. Lacker has also added that lifting rates in the short-term is only possible, if future economic data shows no considerable divergence from expectations. Richmond Fed’s head, who has a right to vote at FOMC meeting in 2015, is one of the most hawkish members of the Federal Open Market Committee, as he was calling for a June rate increase since the beginning of this year.

At the same time, consumer confidence in the US rose more than expected in March. The index, calculated by the Conference Board, advanced to 97 points this month, up from 96.4 in February. Economists, from their side, estimated a jump up to 96.6 points. The survey is based on responses from about 5,000 households across the country; therefore, this indicator in considered to be one of the leading for future consumer spending, which accounts for a majority of the US economic activity.

GBP

“The current bout of low inflation will lift real incomes and spur strong spending growth. It probably will reinforce prospects for strong economic growth.”

- Citigroup

UK economic growth for the fourth quarter of 2014 has been revised upwards, helped by stronger than initially estimated consumer spending and foreign trade. According to the final data, Britain’s GDP gained 0.6% in three months through December, a positive revision from 0.5% seen in the preliminary projection. Moreover, country’s economy surged 3% during October-December time period from a year earlier, up from 2.7% forecasted before. All in all, the economy climbed 2.8% in 2014 and is currently exceeding its pre-crisis peak of 2008 by 3.7%. Among GDP components, the most positive impetus came from household spending which increased 0.6% in Q4, as well as exports which jumped 4.6%, the fastest advance since 2013. Both these indicators were reviewed to the upside, while data for services and manufacturing industries remained unchanged from the preliminary numbers. With imports rising just 1.6%, net trade alone managed to lift UK annual GDP by 0.9% last quarter. Nevertheless, business investment provided a sign of concern as it subtracted 0.9% from Q4 growth. Meanwhile, UK current account was published worse than projected for a ninth consecutive quarter. In October-December, the deficit narrowed to –25.3 billion pounds, better than downward-revised –27.7 billion pounds in Q3, but worse than –21.2 billion pounds estimated by economists. Despite falling trade deficit, the indicator was offset by a widening shortfall on the secondary income account.