Q2 expects rises

Foenix Partners

Foenix Partners

Tuesday saw the focus drop away from the eurozone as top tier data resumed for both the US and UK as strength in the greenback subsided and markets resumed to ‘normal conditions’. The European open saw UK GDP slip from expectations of 2.8% to 2.7% (Q4, y/y), despite being slightly above the prior figure of 2.6%. With inflation down at historic lows of 0.5%, growth is in focus for the UK economy in particular, not to mention the ongoing impact of the eurozone, which both Carney and Yellen have mentioned recently in the press. If GDP continues to disappoint along with inflation, the Bank of England will be forced to reassess the interest rate increase and potentially push back expectations, which could weigh on the pound. Across the Atlantic top tier data came to light after a quiet few days in the US; firstly, durable goods missed expectations significantly, printing -3.4%, well below the 0.5% expected. Shortly after the afternoon took a more positive spin as both markit services PMI and consumer confidence were strong, 0.2 above forecast for services PMI and a huge 102.9 print (95.1 forecast) for consumer confidence.

Price action saw some relief for the euro and sterling yesterday as they both progressed well against the dollar, for the first time in a number of weeks. EURUSD pushed through 1.1400 to highs of 1.1422 and after an initial selloff on the GDP print, GBPUSD made steady progress through the afternoon to surpass the 1.5200 level at 1.5222 highs. With comparative strength in the euro, GBPEUR moved down off its 7.5 year peaks to settle above 1.3300 as the market eyes up future progress of the euro after recent events. The day ahead proves a quiet one with the focus coming late in the day; the Fed interest rate decision is at 7pm, with the accompanying Monetary Policy statement to come at the same time. No interest rate change is expected, but the market will be watching keenly to see if Janet Yellen makes any firm commitment around when a hike in rates will occur, and anything different from the expected Q2 rise, will cause markets to adjust accordingly and volatility will likely occur.

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