First quarter GDP in the US was revised from a previously reported 0.2% gain to show a contraction of 0.7%. However this was better than the -0.8% rate that was expected.
The US dollar moved back above the key 124.00 yen level after the GDP data, maintaining strength after hitting a 12-year high against the Japanese currency yesterday. Helping buoy the dollar is the market’s expectation for a rate hike later this year after Fed Chair Janet Yellen’s comments last week. Meanwhile, next week’s all-important nonfarm payrolls report will be a key driver of the dollar.
The euro remained resilient and moved higher against the dollar today, rising for a third consecutive session to trade to a high of 1.1005. After a drop to 1.0818, the single currency has made back losses and is set to end the week flat. Concerns over Greece appear to be fading as there is optimism for some kind of Greek deal. If there is an agreement with Greece’s creditors, this would trigger a rally in the euro. A key risk for the euro will be next week’s ECB policy meeting.
Sterling has been notably weak against the dollar and any bounces were soon reversed. The pound reached a low of 1.5235.There were no UK data releases today although there was a weak reading of revised UK 1st quarter GDP on Thursday. But overall recent weakness in the British currency has been largely driven by a broadly stronger dollar and diverging policies between the Bank of England and the Fed. The latter is clearly going to hike before the UK central bank. Next week’s BoE policy meeting will be important to watch.
Another central bank meeting that will be held next week will be the Reserve Bank of Australia. The aussie has had a bad week against its US counterpart, plumbing down to a 6-week low of 0.7616 yesterday and hovering close to this level today. Bets for a rate cut by the RBA have been a factor behind the Australian currency’s weakness.