US GDP exceeds expectation for Q2

A day of silence on the economic calendar for the UK yesterday did not aid the Pound whatsoever. Sterling movements were wholly driven by data from its most traded counterparts and as a result the Pound lost some ground - particularly against the USD.

GBP is trading with an air of softness at the moment since the IMF stated it is up to 10% overvalued and as the USD begins to gain momentum we could see a role reversal between the Pound and the Dollar. Following positive US data during yesterday afternoon the pair traded down from highs of 1.6955 to lows of 1.6889 before tentatively settling marginally over the 1.69 handle ahead of the Interest Rate Decision, Asset Purchase Facility and Press Conference in the States at 7pm BST.

With no significant data from the UK today, the Pound could well find itself under more pressure, especially if the US post positive un/employment figures once again.

Much like Sterling, the Euro also lost ground against the USD yesterday, however, the support level was broken prior to the wave of US data in the evening. As mentioned in yesterdays report, a breach below 1.34 was the next target for the pair and USD maintained its recent momentum – as a result the Euro lost significant ground and traded as low as 1.3367.

On a macroeconomic data front, we witnessed a less than inspiring day for the Eurozone. On the morning session the release of the sentiment and confidence index’s produced a mixed bag of results, however, these did not do anything to prop the bloc currency up. German inflation data come in as expected for the most part with Harmonised Index of Consumer Prices showing that inflation has slowed to 0.8% from 1% YOY.

This morning we have the release of the German Unemployment Rate at 8:55am, followed later at 10am by Eurozone CPI (Inflation). If we see a significant decline in Eurozone inflation the ECB are unlikely to announce any further stimulus, insisting that the current package needs time to feed into the economy. This could make the inflation figures today slightly less important than that of before the rate cut.

Yesterday was the day of the Dollar as it gained significant ground against some of its most of its most traded counterparts. From a fundamental point of view, indeed many of us expected the US GDP figure released yesterday to far exceed that of Q1 2014 when we saw -2.9% posted. What the market did not anticipate was US GDP to exceeding consensus by a full 1%, coming in at 4% for Q2. As a result and as aforementioned in this report, the USD rallied and pushed Sterling below 1.69 and into the 1.33’s against the Euro.

On the evening session and despite the USD performing impressively of late, the FOMC Statement did little to back the data up. Yellen and Co once again put forth a dovish tone but they did go ahead and taper QE by a further $10bn pcm and hold the interest rate at 0.25%. Q1 GDP was revised from -2.9% to -2.1% showing that the Q1 decline was not as bad as we were told initially. Unlike many market participants it would seem that the FOMC aren’t getting too carried away, however, the level of transparency from the FED is now being questioned, especially given that the FOMC refuse to comment on when the interest rate might rise. The FED are most likely taking a measured approach to be risk averse – the market is likely to go haywire should they start to give a solid idea or hint of when we could see a rate rise.

Later this afternoon we have the release of Initial & Continuing Jobless Claims at 13:30pm, followed by Chicago Purchasing Managers Index at 14:45pm – the market is likely to trade in anticipation of tomorrow’s Non-Farm Payrolls, Unemployment Rate and ISM Manufacturing.