Fundamental Comment

This Week: GDP data, monetary policy meetings to grab attention

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The most important events this week that could weigh on the movements of major currencies will be the first-quarter growth figures from the U.S. and U.K. and monetary policy meetings by the European Central Bank and the Bank of Japan.

Noting that, political issues could have bigger impact on the currencies movements this week amid worries about global trade and the situation in Syria.

The tame inflation that reached 0.9 percent in the year ended March, according to the core CPI gauge, will probably prompt policymakers at the BOJ to hold the massive stimulus and interest rates in the negative territories.   

US Dollar

The U.S. dollar recorded slight gains last week, where it continued to trade in the same levels close to 90.00, according to the dollar index.

The green currency took advantage of the easing geopolitical tensions in Syria after America’s air strike and amid hopes that President Trump would reach a compromise with China regarding trade.

As for economic data, eyes will focus this week on the advanced first-quarter GDP reading, from the United States, which may show an ease in expansion to an annual 2.2 percent, compared to both the fourth quarter growth rate of 2.9 percent.

A better than forecast reading is likely raise expectations of four rate hikes this year, which could give some support to the greenback, while the opposite is true.

Euro

This week, the investors will focus on the monetary policy meeting by the ECB, where policymakers will decide on the borrowing cost.

The ECB is predicted to hold interest rates at their record low as euro area inflation remained below the central bank’s target of near 2 percent.

President Mario Draghi is likely to postpone any decision related to an exit of bond purchases, amid global trade war concerns.

A flash manufacturing and services composite PMI in the euro area may show a widening expansion in April to 55.7 from 55.2 in March, according to analysts’ forecast.

If the data moved in line with expectations, it could give some support to the euro, especially as the first-quarter figures pointed to a slowdown. 

Pound Sterling

The movements of the pound sterling this week could take some cues from the initial first-quarter GDP for the United Kingdom.

The reading is likely to confirm a stability in the pace of growth at 0.4 percent in the first three months of 2018. The year-on-year reading, however, may accelerate to 1.5 percent from 1.4 percent expansion in the last three months last year.

The pound sterling came under pressure last week, dropping from the highest level since June 2016 versus the U.S. dollar after the release of dismal inflation and retail sales reports.

In addition, dovish comments from Bank of England Governor Mark Carney at the end of last week added more pressure on the sterling as it lowered expectations of an interest rate hike next month.

Commodities

Gold retreated last week as the ease of trade tensions and the conflict in Syria dented the appeal of the shiny metal as a safe haven asset.

The yellow metal also failed to rise as the U.S. dollar rose against a basket of major currencies, thereby cutting demand on gold as an alternative investment.

This week, gold’s movement will probably be buoyed by the development in the situation in Syria, in addition to any new updates about the trade conflict between the U.S. and China.

Regarding oil, it traded near the highest level since late 2014 last week, lifted by tighten market and firmer demand. 

U.S. crude inventories slipped by 1.1 million barrels in the week ended April 13, providing clues about strengthening demand, where fears of oil supplies gave another impetus.

This week, the EIA U.S. government report may show a rise by 0.29 million barrel in the week through April 20.

In case the data matched forecasts, oil prices could ease from its record highs.

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