Market Updates – April 30

Federica D’Ambrosio

Senior Trader and CFO

The Impact of Slow Eurozone Growth and Inflationary Pressures on Currency Market

Last week’s economic data releases revealed mixed news for the Eurozone. While the CPI data confirmed that inflationary pressures are still present, the less optimistic German Q1 GDP data is causing some market jitters to resurface. As a result, the dollar is gaining ground in European morning trade, with the euro and pound now weighed down to the lows for the day against the greenback. These developments are causing some investors to weigh up the impact of these economic data releases on the currency market going forward.

The German economy stagnated in the first quarter of this year, missing growth estimates. This downbeat GDP data is causing the euro to slip and consolidate its decline, triggering a broad-based US dollar rebound. The Eurozone Q1 preliminary GDP also showed only a marginal growth of 0.1% versus 0.2% q/q expected, after having stagnated in the final quarter of last year. While this still affirms some added resilience, it’s not quite as optimistic as lawmakers and policymakers would have hoped for. Furthermore, Germany’s April preliminary CPI is at 7.2% vs 7.3% y/y expected, indicating that the European Central Bank (ECB) might take heart from lower core prices next week. However, a return to 2% inflation is still a long way off.

Turning our attention to the United States, the latest inflation report shows that inflation, as measured by the PCE Price Index, declined to 4.2% on a yearly basis in March from 5.1% in February. This reading came in lower than the market expectation of 4.6%. While this may be good news for the Federal Reserve, the underlying measure of price increases remained stubbornly high. The annual Core PCE Price Index, the Fed’s preferred gauge of inflation, edged lower to 4.6% from 4.7% in the same period, compared to analysts’ forecast of 4.5%. On a monthly basis, Core PCE inflation and PCE inflation rose 0.3% and 0.1%, respectively. This mixed picture may prompt the Fed to continue to tread carefully when it comes to their interest rate policy.

Overall, investors are keeping a close eye on the impact of these economic data releases on the currency market. The continued strength of the US dollar is something to watch, as the currency remains in demand in the current market environment. While inflationary pressures remain present, the slow growth of the Eurozone’s economy is causing some market jitters to resurface. With these developments in mind, it remains to be seen how the currency market will react going forward.

High Impact News This Week: May 1 – 5

Please remember to close the exposure in the directly related pair to the news event. The exposure must be cleared 1 hour before the event and the position can be opened again from 30 min after the data has been released, in case of a speech positions can be reopened after the speech is over. 

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