- Solid US growth and muted inflation boosts US dollar and Wall Street
- But other majors sag as disappointing Chinese PMIs revive growth fears
- Fed to start two-day monetary policy meeting, unlikely to alter stance
Dollar eases from 22-month high but remains supported ahead of FOMC meeting
The US currency was outperforming its peers early on Tuesday as there was further evidence on Monday that growth in the world’s largest economy is picking up speed. Personal consumption in the US rose at the fastest pace in nearly 10 years in March, while the Fed’s preferred inflation gauge, the core PCE price index, unexpectedly slipped to 1.6% year-on-year – the lowest in 14 months.
The data reinforced the view that the Federal Reserve will keep interest rates on hold on Wednesday when it concludes a two-day meeting that starts today. The Fed has little reason to tighten policy when underlying inflation is weakening even as growth is rebounding from a short-lived soft patch.
In comparison, PMI figures released in China earlier today raised fresh concerns about the growth outlook outside of the United States. Both the official and Caixin/Markit manufacturing PMIs missed expectations in April, easing slightly from the prior month.
The relative strength of the US economy drove the greenback higher against its peers, with the dollar index edging higher to 97.86, not far from last week’s 26-month top. However, against the Japanese currency, the dollar was slightly lower at 111.38 as the safe-haven yen was lifted from the risk-off mood triggered by the Chinese PMIs.
Aussie dips after China PMIs as risk sentiment sours
The Australian dollar took a knock from the soft manufacturing numbers out of China as risk appetite deteriorated, with investors shrugging off yesterday’s strong performance on Wall Street. Both the S&P 500 and the Nasdaq Composite closed at an all-time high following the US data and a raft of upbeat earnings results.
However, it was a more subdued picture in Asia and Europe where concrete signs of a turnaround have yet to be seen. The risk-sensitive aussie was down about 0.2% at $0.7040, heading back towards last week’s near 4-month lows. The yen was broadly firmer even with Japanese markets closed for the entire week to celebrate the enthronement of a new Emperor.
The negative market mood wasn’t enough to dent commodity prices, however, as both oil and gold turned higher. WTI oil attempted to recover from the 3-week lows touched last week when it slumped on reports that US President Trump had again asked OPEC to lower prices. Gold also moved higher after coming under pressure yesterday from the strong US data.
Euro flat ahead of Eurozone GDP figures
The focus in the European trading will be first quarter GDP numbers out of the Eurozone. The euro area is projected to have expanded by 0.3% quarter-on-quarter in the first three months of the year. But many market participants are more pessimistic so if growth does come in line with expectations than the euro could enjoy a bit of a boost.
The single currency was last trading flat on the day at around $1.1180. The pound was also little changed at around $1.2940. There was only limited reaction in forex markets to several reports in the past 24 hours that progress is being made in the talks between the UK government and the opposition Labour party to find a solution to the Brexit impasse as traders maintained caution.
Also coming up later today is the Canadian monthly GDP estimate for February. The Canadian dollar has been on the backfoot following last week’s dovish Bank of Canada meeting and Friday’s slide in oil prices. Today’s GDP data may provide the loonie some support if it does not disappoint, but a better-than-expected figure may fail to generate much of a rally.
