This morning US Q2 GDP data was hotly anticipated. President Trump even got into the act yesterday. He told a Pittsburgh audience that he would be happy with a number with a “4” in front of it and talked of predictions as high as 5.3%. He is being criticized for breaking protocol as a president is not supposed to talk about economic data before it has been released. Today’s result suggests that the President didn’t know any more than the average person.
The Bureau of Economic Analysis said that Q2 Real GDP rose 4.1%, y/y compared to a Q1 increase of 2.1%. Despite not living up to this week’s hype, this report doesn’t do anything to change the odds (currently 89%) that the Federal Open Market committee raises interest rates by 0.25% on September 28.
Kermit the Frog, sang “it’s good to be green” and FX traders have joined in the chorus, buying US dollars across the board this week. The US dollar started moving higher after yesterday’s “non-event ECB monetary policy meeting and press conference, finishing the day with gains against the major G-10 currencies. This mornings GDP data shouldn’t derail the rally, although being a Friday, FX markets are vulnerable to profit -taking corrections ahead of the weekend.
It is going to be very busy next week. There are three major central bank meetings, plenty of top-tier regional economic data releases and it is a US nonfarm payrolls week. It is also, and early forecasts for portfolio rebalancing flows suggest US dollar selling against the Canadian and Australian dollars and Sterling.
The overnight FX session was quiet. The US dollar recorded small gains against the G-10 majors except for the Canadian dollar and Japanese yen.
USDJPY traded choppily in a 110.90 -111.24 range and is currently trading at 111.00. Tokyo CPI data was higher than expected and bump in JGB yields above 1.0% underpinned prices. USDJPY received support from speculation that the Bank of Japan may tweak its policy toward ending quantitative easing, at Monday’s monetary policy meeting.
GBPUSD has tracked EURUSD lower. Sterling pressure stems from the EU Chief Trade Negotiator Michel Bernier’s rejection of the UK customs proposal. GBPUSD has dropped from 1.3210 yesterday to 1.3090 overnight and is currently sitting at 1.3110. A decisive break below 1.3000 targets 1.2750
EURUSD fell from 1.1738 just before ECB President Mario Draghi’s press conference yesterday. Traders, expecting some clarification as to the timing of the next rate hike, were disappointed. Prices have been dropping ever since. EURUSD has been consolidating the losses within a 1.1620-60 range.
USDCAD was sold on hopes for a favourable resolution to the Nafta renegotiations, supported by the Trump/Juncker deal. A Nafta deal would clear the road for the Bank of Canada to raise rates.