Weaker-than-expected first-quarter GDP data released in the eurozone and more dovish comments from policymakers sent the euro to near three-month lows against the US dollar. Not only were growth figures released at half what was expected, but the divergence between Germany and other major economies such as Italy and France grew. Perhaps the ‘good’ news was seen with the release of final HICP, which was left unrevised. Nevertheless, at 0.7 per cent inflation and 0.2 per cent quarter-on-quarter growth, concerns over stagflation were flamed by the data. The figures support the view that the European Central Bank will take on a more accommodative stance at next month’s policy meeting, which is limiting the euro’s ability to hold onto any small gains, as it continues to slip to lower levels.
Sterling
The pound continues to feel the sting from this week’s quarterly inflation report and weak wage data. The dovish sentiment expressed by the central bank policymakers is keeping the pound near one-month lows against the US dollar. The lack of data agenda will cause investors to look into next week when there is the release of the Bank of England minutes and CPI data. Soft inflation figures and dovish minutes could weigh on the currency’s ability to rise going into next week.
US dollar
US producer prices surprised the market earlier in the week as data showed a faster pace of gains. There could be evidence that higher producer prices are starting to trickle down to consumer prices according to data seen. CPI came in at 0.3 per cent, which was in line with forecast, but was the largest gain see in 10-months. The higher inflation figures, coupled with a seven-year low in weekly jobless claims figures, gave the dollar fresh momentum to edge higher against the euro and touched levels not seen in 11 weeks. The sudden drop seen in industrial output figures, which came in at -0.6 per cent or a two-year low, was shrugged off after two healthy months of gains. Further, a regional manufacturing report in New York showed its strongest performance since June 2010. The manufacturing data was primarily supported by the new orders book, which bodes well for future growth. Looking forward, the housing market has been one of the primary concerns facing the central bank as data has begun to show a marked slowdown in the pace of the recovery in this sector of the economy.