Dollar gains on upbeat U.S. GDP data, sterling tanks after Tory's lead narrows: May 29, 2017

Market Review - 27/05/2017   02:33GMT  

Dollar gains on upbeat U.S. GDP data, sterling tanks after Tory's lead narrows

Dollar pared initial yen-led weakness in Asia and European morning and rallied after U.S. Q1 GDP was revised much higher then street forecast. Sterling came under heavy broad-based selling which began ahead of Asian open when latest polls result showed ruling Conservative's lead over its Labour opposition had dropped to only 5 percentage points ahead of the June 8 election. 

The greenback rallied in early New York trading after upbeat U.S. GDP. U.S. economic growth slowed less sharply in the first quarter than Market forecast, however, some economists said weakness was likely an aberration amid a strong labor market that is near full employment. 

The U.S. gross domestic product rose at a 1.2% annual rate instead of the 0.7% pace reported last month, the Commerce Department said in its second estimate. 

Earlier in Asia, dollar yen came under heavy selling pressure due to broad-based yen buying especially versus sterling, usd, euro and the aussie, the pair fell from 111.86 in Australia to session lows of 110.88 at London midday. The release of a strong upward revision in the Q1 U.S. GDP led to broad-based rally in the usd, price rallied on short covering as well as speculative buying and climbed to 111.42 near European close and then moved narrowly in thinned New York session ahead of the long holiday weekend. U.S. financial markets will be closed for Memorial Day Holiday on Monday. 

The single currency swung wildly in Friday's volatile trading. Price fell from 1.1217 in Australia to 1.1186 in Asia on selling in eur/jpy cross, however, price then rallied in European morning to session highs of 1.1235 as intra-day decline in usd/yen had triggered broad-based usd's weakness. However, euro quickly fell on upbeat U.S. GDP data and weakened to a near one-week low of 1.1161 and then traded narrowly in subdued New York afternoon, price traded around 1.1182 at the close, well below Tuesday's fresh 6-month peak of 1.1268. 

In European morning, at a press conference, President of the European Council Donald Tusk and European Commission head Jean-Claude Juncker said : 

- at G7 summit "We want to build bridges not walls"   

- we believe Paris agreement should be implemented entirely, EU will push for this   

- Not true trump took aggressive approach on German trade surplus in talks in Brussels   

- Trump talked about German trade surplus but did not say Germany was misbehaving, reports have been exaggerated   

- this will be the most challenging G7 in years  

- says positively surprised by Trump's comments on Brexit   

- Trump agreed EU was more united after Brexit than before   

- Trump was very tough on north Korea in Brussels talks, can count on EU support 

The British pound captured centre stage in hectic trading on Friday. Sterling started to fall from intra-day high of 1.2947 to 1.2866 after tripping a series of stops below 1.2020 n then last week's low of 1.2888. Traders cited early news which came out during Australian morning being the main reason of the intra-day selloff on news ruling Conservative's lead over its Labour opposition party had narrowly 5 percentage points. Intra-day decline continued in European morning and later accelerated in New York as robust U.S. GDP data led to broad-based usd's strength, cable later tanked to a one-month trough of 1.2775. Price later staged a short covering recovery to 1.2818 ahead of New York close. 

Reuters reported earlier Britain's opposition Labour Party has cut the lead of Prime Minister Theresa May's Conservatives to five points less than a fortnight before a national election, according to the first poll published since a suicide bombing killed 22 people.  

In a sign that the election could be more closely contested than has previously been thought, YouGov said on Thursday May's party was on 43 percent, down 1 percentage point compared to a week ago, while Labour was up 3 points on 38 percent.  

The previous YouGov poll had given May a lead of nine points. 

Britain suspended political campaigning for the June 8 election after the attack on Monday night in Manchester.  

Polls had put May's Conservatives on course for a big victory after she called the snap election in April but her lead slipped in the days before the attack when she was forced to backtrack on a key proposal for reforming social care.  

YouGov's Anthony Wells said May and her party had been hurt by the fallout from the manifesto launch but said it was hard to determine the impact of the bombing on the election campaign.

When looking at May's personal favourability ratings, the poll showed May's ratings rising by 1 point in recent days, while support for the Labour leader Jeremy Corbyn fell by 8 points.  

"It has been a highly unusual few days in an election campaign, arguably unlike any other in history," Wells said.  

The poll of 2,052 people, which was conducted for the Times newspaper, was conducted on May 24-25. 

Economic calendar on Monday is very thin, Switzerland's non-farm payrolls and euro zone money supply being the only data due out. U.K. market is closed for Spring Bank Holiday and U.S. market closed for Memorial Day Holiday.