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29 Apr 2013
Forex Flash: USD trading on weaker footing following US Q1 GDP report - BTMU
FXstreet.com (Barcelona) - Lee Hardman, FX analyst at the Bank of Tokyo Mitsubishi UFJ notes that the US dollar has continued to weaken modestly overnight following the weaker than expected US GDP report on Friday, with USD/JPY hitting an intraday low of 97.35.
He notes that the report revealed that the US economy rebounded more modestly than expected by 2.5% in Q1 after expanding by just 0.4% in Q4 2012. He sees that the main drivers of the pickup in growth in Q1 were consumption and inventories which added 2.24 and 1.03 percentage points to growth respectively. However again he notes that government consumption provided a headwind to growth in Q1 subtracting -0.8 percentage points from growth. Overall the report was consistent with the US economy expanding at an annual underlying pace of around 2.0%. Further, he notes that final sales to domestic purchases (excluding the volatile inventory component and net exports) accelerating modestly to 1.9% in Q1.
With the US economy already slowing towards the end of Q1 the pace of growth is expected to weaken again in Q2 weighed down by further fiscal tightening from the sequester cuts. He writes, “We do not expect a material change to the Fed’s outlook for the US economy at this week’s meeting. However, the market will be closely watching the release of the payrolls report for April given the sharp slowdown in employment growth in March. Evidence that the employment growth slowdown is more than temporary would likely weigh more heavily upon the US dollar ahead.” In Japan it is a market holiday today and on Friday for Golden week ensuring that market conditions will likely prove less liquid than normal which could potentially exacerbate USD/JPY price action heading into and following the release of the US employment report.
He notes that the report revealed that the US economy rebounded more modestly than expected by 2.5% in Q1 after expanding by just 0.4% in Q4 2012. He sees that the main drivers of the pickup in growth in Q1 were consumption and inventories which added 2.24 and 1.03 percentage points to growth respectively. However again he notes that government consumption provided a headwind to growth in Q1 subtracting -0.8 percentage points from growth. Overall the report was consistent with the US economy expanding at an annual underlying pace of around 2.0%. Further, he notes that final sales to domestic purchases (excluding the volatile inventory component and net exports) accelerating modestly to 1.9% in Q1.
With the US economy already slowing towards the end of Q1 the pace of growth is expected to weaken again in Q2 weighed down by further fiscal tightening from the sequester cuts. He writes, “We do not expect a material change to the Fed’s outlook for the US economy at this week’s meeting. However, the market will be closely watching the release of the payrolls report for April given the sharp slowdown in employment growth in March. Evidence that the employment growth slowdown is more than temporary would likely weigh more heavily upon the US dollar ahead.” In Japan it is a market holiday today and on Friday for Golden week ensuring that market conditions will likely prove less liquid than normal which could potentially exacerbate USD/JPY price action heading into and following the release of the US employment report.