Friday May 14, 2004 - 17:35:18 GMT
Share This Story
DailyFX.com - www.dailyfx.com
Euro area prints solid Q1 GDP growth
EURUSD remains in 1.1760 – 1.1940 range although price action here and across the majors is choppy as market-makers square up and liquidity falls ahead of the weekend. Eurozone GDP expanded by 0.6% in the first quarter as reports from Germany, Italy, France and the Netherlands all showed strong gains. ECB President Trichet noted that recently improved data has proved the Bank right in standing pat rather than easing rates. Talk in the market has now turned to an ECB rate hike. Euribor futures contracts are currently pricing in 25 to 50 basis points worth of rate increases by the end of the year, in stark contrast to calls from the OECD earlier this week for an immediate 50 bp cut. Early on in the US session, softer than expected CPI data and a flat University of Michigan consumer confidence reading both conspired to push EURUSD briefly above the 1.1900 level before retracing.
CHF ended a relatively volatile week slightly higher against the dollar, a combination of rising geopolitical risk and increasing expectations of Swiss rate hikes in 2004. Recent policymaker comments have suggested that while the SNB will embark on a tightening cycle this year, rate rises do not appear imminent this quarter. The SNB’s Hildebrand put the market on notice Friday, asserting that the central bank stands ready to raise interest rates should the real economy continue to improve. This marks a recent shift in the Bank’s rhetoric, as SNB President Roth noted last month that the time “has not come yet” for tightening policy. Next week the market will be looking to a speech from Roth on Friday for further clues, while Swiss trade data released Wednesday provides another important signal on the recovering economy’s strength.
Sterling ranked among the worst performing G7 currencies for the week, losing approximately 2% against the dollar, its biggest drop in nearly a month. Despite robust labor market growth and Bank of England’s Inflation Report forecasting price increases above target, GBP sold off on expectations of narrowing interest rate differentials between the UK and US, as well as poor manufacturing output data earlier in the week. With Fed rate hike expectations ratcheting higher, sterling has come under increasing pressure: a June 30 25 basis point hike has been completely discounted, and speculation of a 50-basis point rise in a single meeting continues to grow. Like EURUSD, cable rallied and came off Friday during the US morning after US consumer prices increased by a smaller than expected 0.2% in April, and consumer confidence recorded a flat reading in May. Next week sees a batch of UK data—CPI, retail sales, and MPC minutes—that will be key to maintaining the market’s expectations of BoE rate increases.
USDJPY ends the week nearly two big figures higher as investors pile out of Asian equities; in its worst week for the year, the Nikkei was down a sizable 5.2%, plagued by rate hike concerns in the US, reduced demand for Japanese imports from China and all-time traded highs in crude oil. Although the yen enjoyed a slight bounce Friday following mildly dollar-negative CPI and consumer confidence releases, it continues to retrace its gains into the New York afternoon. Near to medium term, political risk provides an additional headwind for the yen as calls grow louder for PM Koizumi to resign over missed pension fund payments. In a scandal that forced both Chief Cabinet Secretary Fukuda and opposition leader Kan to resign, Koizumi has also admitted to skipping state pension fund payments, though for a far longer period of nearly seven years. With the Japanese economy having begun to recover during the publicly popular Koizumi’s tenure, the PM’s resignation could prompt a renewed bout of yen selling.
Forex Trading News
Daily Forex Market News
Forex news reports can be found on the forex research
headlines page below. Here you will find real-time forex market news reports
provided by respected contributors of currency trading information. Daily forex
market news, weekly forex research and monthly forex news features can be found
Real-time forex market news reports and features providing
other currency trading information can be accessed by clicking on any of the
headlines below. At the top of the forex blog page you will find the latest
forex trading information. Scroll down the page if you are looking for less
recent currency trading information. Scroll to the bottom of fx blog headlines
and click on the link for past reports on forex. Currency world news reports
from previous years can be found on the left sidebar under "FX Archives."