Set-back for businesses waiting for US rate hike, Bank of Japan not ready to act yet
29/Apr/2016 • Currency Updates•
Expectations that the Federal Reserve will hike US interest rates multiple times this year were dealt a slight blow yesterday after new figures showed that economic growth slowed in the first quarter of the year in the US.
The world’s largest economy expanded by just 0.5% in annualised terms, well down on the 1.4% growth recorded in the final quarter of last year, with consumers and businesses in the US showing renewed signs of caution. This marked the slowest growth rate in the country in two years.
A China-induced slowdown in the global economy and weak exports also hurt by a relatively strong Dollar remain an issue in the US, with almost all sectors of the economy, housing excluded, slowing in the first three months of the year.
Meanwhile, the Japanese Yen stabilised during London trading yesterday, having surged by almost 3% during the Asian session on Thursday after the Bank of Japan refrained from increasing its economic stimulus. The main interest rate was left unchanged at -0.1%, with asset purchases continuing to total 80 trillion Yen.
While this move was not entirely unsurprising, the central bank also pushed back its timeline to meet its inflation target for the fourth year in a row. This suggests that policymakers in the country may be in no rush to implement fresh easing measures despite stagnant inflation, weak growth and a strong Yen.
The Yen has now rallied by 10% against the US Dollar so far this year, helped by a lack of action from the BoJ and a general flight to safe-haven currencies.
The latest Eurozone inflation figures for April are expected to fall back into negative territory this morning. This could prove a Euro negative today and ramp up pressure on the European Central Bank to increase its easing measures in the coming months.
Major currencies in detail:
Sterling was mostly range-bound yesterday, ending just 0.1% higher against the US Dollar despite weak growth figures across the Pond.
Economic news out of the UK was fairly light on Thursday.
House price growth in the UK economy slowed in April, according to Nationwide, with investors unnerved by the possibility of an exit from the EU at this June’s referendum. The annual pace of price growth slowed to just 4.9% this month compared to the 5.7% recorded in March.
Uncertainty surrounding this year’s EU referendum appears to have dampened UK economic activity over the past few months, with overall GDP growth slowing to 0.4% in the first quarter.
Today should mark a relatively quiet end to the week for the UK economy, with net lending figures this morning and a speech from monetary policy member Cunliffe at 13:00 UK time both worth watching out for.
The Euro ended 0.1% lower against the US Dollar on Thursday.
Unemployment figures out of Germany yesterday were mostly positive, boding well for today’s Euro-wide number. The jobless rate remained unchanged at 6.2%, although it decreased in absolute terms by 16,000 to a record-low level in another sign that Europe’s largest economy is performing relatively well amid the global economic slowdown.
Confidence in the Eurozone economy also provided a pleasant upward surprise yesterday, with the European Commission’s economic sentiment indicator increasing modestly to 103.9 in April.
Unemployment in the Eurozone economy is expected to remain unchanged at 10.3% this morning.
The US Dollar index fell by 0.25% on Thursday, having plunged during Asian trading on the back of inaction from the Bank of Japan.
Yesterday’s growth miss provided a moderate drag on the Dollar. While the Fed acknowledged on Wednesday that the US economy had slowed, it’s worth noting that residual seasonality has plagued US first quarter GDP figures in five of the past six years.
Despite the recent slowdown in economic growth, the US labour market continues to perform impressively. Initial claims for jobless benefits rose slightly last week, although remained around the lowest level in over 40 years. Claims increased by 9,000 last week to 257,000.
This afternoon should be a fairly busy one in the US economy. Personal income and spending figures will be the highlight at 13:30 UK time and could cause moderate volatility in the US Dollar today.
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