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Dollar mixed after better employment data offsets negative Q1 GDP result

USD

The dollar recovered against the pound and the yen but continued to weaken versus the euro on Thursday.

It particularly it was supported by the release of Initial Jobless Claims which fell by a greater-than-expected 34k to 262k when it had been expected to only fall by 6k to 290k.

Continuing Claims also undercut expectations, declining to 2253k from 2327k previously – beating forecasts of a fall to 2300k.The strong employment data put a brake on the relentless string of poor economic data releases which had started to delay rate hike expectations to the end of the year instead of the summer as previously hoped.

The upbeat jobs data was offset somewhat by a slight undershoot in Personal Consumption Expenditure which came out at 1.3% yoy in March, the same as previously, when a 1.4% result had been forecast. Mom it was the same story, with stagnation at 0.1% as opposed to the increase to 0.2% estimated.

Personal Spending also failed to hit estimates, coming out at 0.4% instead of 0.5%- although it was still a rise from the 0.2% previously. Personal Income failed to rise, however, coming out at 0.0% instead of the 0.2% forecast from 0.4% previously.

EUR

The euro continued its rally versus the dollar on Thursday storming to a two-month high at 1.1249 per dollar, after Core Euro-zone CPI managed to meet expectations of a 0.6% rise in April and the CPI Estimate also hit forecasts at 0.0% – a slight recovery from the -0.1% previously.

The single currency also gained succour from an above forecast Spanish GDP number and market sentiment that the ECB may be obliged to taper its QE programme at some point.

Spain the first of the four biggest eurozone economies to release data came in at 0.9% quarter over quarter up from 0.7% quarter over quarter in Q4 last year. The larger than expected performance means the risks to the overall Eurozone outlook are on the upside. Robust growth is attributed to Spains labour reform efforts which are starting to bear fruit even if it will take time with unemployment at 23.0%, for the labour market to feel the full benefit of these reforms.

Eurozone March unemployment was steady at 11.3%. Markets were hoping for a decline in the still high number, but while domestic demand is rising and helping the labour markets to recover, progress is slow and disparities across the Eurozone remain high. March figures showed unemployment rates ranging from 4.7% in Germany to possibly 25.0% in Greece ( Greece still to report).

Service price inflation declined to a new historical low of 0.9% yoy in April from 1.0% yoy in March. The very low service price inflation reflects that there is still no sign of higher wage pressure despite progress in the labour market.

GBP

The pound weakened on Thursday as a lack of data meant it was more subject to the drivers pushing its counterparts than its own news flow.

The continued uncertainty over the outcome of the election on May 7, the possibility it could lead to a hung parliament and the rise of support for the anti-E.U UKIP party may all have also weighed on sterling.

Data included Consumer Confidence in April, released over-night, which came out at 4 in line with expectations, and Lloyds Business Barometer which came out at 53 in April, showing no-change from the previous period.

JPY

The yen weakened today versus the dollar losing 60 points against Wednesday’s close.

Japan’s industrial production fell 0.3% in March coming in well above the 2.3% decline that had been forecast in the Reuters poll.

The Bank of Japan as expected did not announce any new easing measures in connection with today’s monetary meeting. The 80 trillion yen programme was maintained by a vote of 8-1 with board member Kuichi being the sole dissenter.

As expected the BOJ revised its GDP and inflation forecast lower by a small margin lowering GDP growth of 2015 to 2% from 2.1% and the forecast for 2016 was also revised down from 1.6% to 1.5%.

Inflation forecast (CPI excluding fresh food) for 2015 down from 1% to 0.8% and for 2016 down from 2.2% to 2%. The BOJ therefore expects to reach its 2% inflation target at some stage in 2016.

Many economists do not believe the BOJ will expand its easing programme further, as inflation seems to be bottoming out, wage growth appears to have picked up and GDP growth is expected to be above expectations in the coming quarters.

Analysts also continue to believe the yen will weaken further against the dollar in the coming months but not as a result of more easing by the BOJ but rather a more hawkish Federal Reserve.

USD

The dollar recovered against the pound and the yen but continued to weaken versus the euro on Thursday.

It particularly it was supported by the release of Initial Jobless Claims which fell by a greater-than-expected 34k to 262k when it had been expected to only fall by 6k to 290k.

Continuing Claims also undercut expectations, declining to 2253k from 2327k previously – beating forecasts of a fall to 2300k.The strong employment data put a brake on the relentless string of poor economic data releases which had started to delay rate hike expectations to the end of the year instead of the summer as previously hoped.

The upbeat jobs data was offset somewhat by a slight undershoot in Personal Consumption Expenditure which came out at 1.3% yoy in March, the same as previously, when a 1.4% result had been forecast. Mom it was the same story, with stagnation at 0.1% as opposed to the increase to 0.2% estimated.

Personal Spending also failed to hit estimates, coming out at 0.4% instead of 0.5%- although it was still a rise from the 0.2% previously. Personal Income failed to rise, however, coming out at 0.0% instead of the 0.2% forecast from 0.4% previously.

EUR

The euro continued its rally versus the dollar on Thursday storming to a two-month high at 1.1249 per dollar, after Core Euro-zone CPI managed to meet expectations of a 0.6% rise in April and the CPI Estimate also hit forecasts at 0.0% – a slight recovery from the -0.1% previously.

The single currency also gained succour from an above forecast Spanish GDP number and market sentiment that the ECB may be obliged to taper its QE programme at some point.

Spain the first of the four biggest eurozone economies to release data came in at 0.9% quarter over quarter up from 0.7% quarter over quarter in Q4 last year. The larger than expected performance means the risks to the overall Eurozone outlook are on the upside. Robust growth is attributed to Spains labour reform efforts which are starting to bear fruit even if it will take time with unemployment at 23.0%, for the labour market to feel the full benefit of these reforms.

Eurozone March unemployment was steady at 11.3%. Markets were hoping for a decline in the still high number, but while domestic demand is rising and helping the labour markets to recover, progress is slow and disparities across the Eurozone remain high. March figures showed unemployment rates ranging from 4.7% in Germany to possibly 25.0% in Greece ( Greece still to report).

Service price inflation declined to a new historical low of 0.9% yoy in April from 1.0% yoy in March. The very low service price inflation reflects that there is still no sign of higher wage pressure despite progress in the labour market.

GBP

The pound weakened on Thursday as a lack of data meant it was more subject to the drivers pushing its counterparts than its own news flow.

The continued uncertainty over the outcome of the election on May 7, the possibility it could lead to a hung parliament and the rise of support for the anti-E.U UKIP party may all have also weighed on sterling.

Data included Consumer Confidence in April, released over-night, which came out at 4 in line with expectations, and Lloyds Business Barometer which came out at 53 in April, showing no-change from the previous period.

JPY

The yen weakened today versus the dollar losing 60 points against Wednesday’s close.

Japan’s industrial production fell 0.3% in March coming in well above the 2.3% decline that had been forecast in the Reuters poll.

The Bank of Japan as expected did not announce any new easing measures in connection with today’s monetary meeting. The 80 trillion yen programme was maintained by a vote of 8-1 with board member Kuichi being the sole dissenter.

As expected the BOJ revised its GDP and inflation forecast lower by a small margin lowering GDP growth of 2015 to 2% from 2.1% and the forecast for 2016 was also revised down from 1.6% to 1.5%.

Inflation forecast (CPI excluding fresh food) for 2015 down from 1% to 0.8% and for 2016 down from 2.2% to 2%. The BOJ therefore expects to reach its 2% inflation target at some stage in 2016.

Many economists do not believe the BOJ will expand its easing programme further, as inflation seems to be bottoming out, wage growth appears to have picked up and GDP growth is expected to be above expectations in the coming quarters.

Analysts also continue to believe the yen will weaken further against the dollar in the coming months but not as a result of more easing by the BOJ but rather a more hawkish Federal Reserve.



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