US GDP Misses Forecast as US Dollar Losses Accelerate

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Headlines

  • Australia Maintained AAA Credit Agency Rating – Market jitters over global trade not enough to weigh down AUD
  • Underwhelming US GDP Kept USD Exchange Rates Under Pressure – Trump administration looks set to pursue weaker USD policy
  • Pound Shrugged Off Better-Than-Expected UK GDP – Odds of imminent BoE interest rate move remain slim
  • Impact of Canadian Inflation Data Limited – Canadian Dollar benefits from wider market sentiment

Australian Dollar

Demand for the Australian Dollar remained bullish on Friday, with investors undeterred by the protectionist rhetoric coming from US officials. Even in the absence of any fresh domestic data the ‘Aussie’ continued to benefit from the relative weakness of the US Dollar, pushing higher across the board. Confidence in the Australian economy remained heightened in the wake of ratings agency S&P’s decision to keep the country on an AAA rating.

An increase in the HIA new home sales index for December could keep AUD exchange rates on a strong footing today, although their upside potential looks somewhat limited.

Sterling

Investors were pleasantly surprised by the fourth quarter UK gross domestic product data, which showed an unexpected acceleration in growth on the quarter. However, the Pound struggled to capitalise on this upside surprise, leaving GBP exchange rates under some degree of pressure. While GDP clocked in at 0.5% on the quarter this only represents the preliminary estimate, with just a fraction of the relevant data factored in at this juncture.

Confidence in Sterling is unlikely to pick up in the near term, with the odds of any imminent Bank of England (BoE) interest rate hike still rather slim.

Euro

The European Central Bank (ECB) survey of professional forecasters proved rather upbeat, suggesting that price pressures are likely to build at a faster rate in the coming years. Naturally this added to hopes that the central bank could shift towards a more hawkish policy bias in the months ahead. Even so, EUR exchange rates failed to maintain their bullish run thanks to technical resistance and the increased strength of other majors.

Any weakness in the latest German import price index figures could weigh heavily on the Euro, adding to doubts over the likelihood of an imminent uptick in inflationary pressure.

US Dollar

Comments from key members of the Trump administration offered little support to the US Dollar, which remained out of favour now that markets see Washington favouring weaker USD exchange rates. Demand for the US Dollar diminished further as the annualised fourth quarter US gross domestic product came in much weaker than forecast. As growth clocked in at just 2.6%, rather than 3.0%, this undermined confidence in the outlook of the world’s largest economy.

Tonight’s personal consumption expenditure core could offer USD exchange rates a rallying point, providing that inflationary pressure shows signs of rising.

Canadian Dollar

Although the Canadian consumer price index contracted -0.4% on the month in December this failed to particularly shake CAD exchange rates. The underlying details of the CPI report were not overly discouraging, with inflation clocking in at 1.9% on the year. A weaker US Dollar also helped to limit the vulnerability of the Canadian Dollar, even though the Trump administration continued to disparage NAFTA.

Weakening oil prices or negative developments relating to NAFTA could see CAD exchange rates slump sharply in the near future.

New Zealand Dollar

NZD exchange rates were able to recover some of their strength ahead of the weekend, with the initial impact of Thursday’s disappointing inflation data fading. While the underlying appeal of the New Zealand Dollar still looks somewhat stretched it was supported by the wider sense of market risk appetite. Nevertheless, the ‘Kiwi’ may struggle to avoid returning to a downtrend in the coming days.

If market sentiment sours today the New Zealand Dollar is likely to shed further ground.

Data Released

January 29th 10:00 AUD HIA New Home Sales (MoM) (DEC)
January 29th 17:00 EUR German Import Price Index (YoY) (DEC) 1.0%
January 29th 23:30 USD Personal Consumption Expenditure Core (YoY) (DEC) 1.5%

Post by TorFX

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