Analysts expect that the small rise recorded in the first estimate will not be maintained, but that the US economy shrank by an annualised 0.9% qoq. Towards the end of the week EUR-USD might venture above the 1.10 again. An even more pronounced fall of 1% for US GDP in Q1 is expected, according to Commerzbank. In a still nervous FX market this is likely to cause concerns about the development of the US economy. The stronger the weakness in Q1 the more notable the recovery in Q2 will have to be to justify a rate hike in the second half of the year. The data published so far cannot confirm that unequivocally either way: of course the labour market developed well in April following a small slump in March. However, both retail sales as well as industrial production disappointed. It therefore seems most likely that the market will follow the lead of the San Francisco Fed President John Williams and will wait and see until a clear picture of the economic slump in Q1 arises. “Hence, the outlook remains optimistic, but with some caution. That means for the FX market: it remains volatile until the US economic outlook for 2015 becomes clearer for the market and the Fed”, says Commerzbank.
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