Good morning
The USD remained stable as US Treasuries continued to recover and equities rebounded, even as the US economy contracted for the first time since 2022. The preliminary Q1 GDP print came in at a softer than expected -0.3%q/q annualised. While the headline figure was soft, underlying domestic demand remains resilient. Both the core PCE deflator and the Employment Cost Index surprised to the upside, while the ADP employment report disappointed, with private payrolls rising just 62k in April versus expectations of 115k. Today, focus turns to the ISM manufacturing print ahead of tomorrow's key April payrolls report.
The rebound in US equities - with the S&P 500 now just 2% below pre-'Liberation Day' levels - on the back of Trump's softer tariff rhetoric may help offset the otherwise unsupportive macro data for the USD, particularly given the current positive correlation between US risk sentiment and the greenback.
The USD index rose 0.2% to 99.99 overnight.
EUR/USD remains confined within the 1.13-1.14 range, as has been the case for most of the second half of April. Yesterday's economic data had little impact on the cross, and for now, the broader FX market appears relatively unresponsive to incoming releases.
Eurozone Q1 GDP surprised to the upside yesterday, printing at 0.4%q/q versus consensus expectations of 0.2%. Analysts continue to expect moderate, below-potential growth for the remainder of the year, supported by real wage gains, a resilient labour market, and the ongoing pass-through from easier ECB policy. On inflation, regional CPI figures from France and Germany came in slightly above expectations, echoing Spain's reading earlier in the week. This suggests that tomorrow's flash Eurozone HICP release may come in on the higher side relative to consensus.
EUR/GBP is steady around 0.8500 in the early European session. Despite potential headwinds for the Euro, EUR/GBP may find support as sentiment turns increasingly dovish toward the BoE. Traders are now anticipating a 25bp rate cut at the BoE's upcoming policy decision on May 8. These expectations have intensified on concerns that the US’s new tariff measures could reduce global inflation and weigh on UK economic growth.
While recent developments suggest some de-escalation, the JPY continues to benefit from elevated economic policy uncertainty and remains, alongside the CHF, one of the few true safe havens in the G10 FX space.
Most major markets in Asia, including China, were closed for Labour Day holidays, which kept regional trading volumes muted.
USD/JPY is trading nearly one figure higher this morning following the BoJ's widely expected decision to hold policy steady at 0.5%. With downward revisions to both growth and inflation forecasts amid greater economic uncertainty, the overall message from the BoJ was deemed dovish. Markets now price in just 8bp of tightening for the remainder of the year, down from 16bp prior to the meeting. Traders expect the BoJ to stay on its policy normalisation path, albeit contingent on the global trade conflict having only a limited impact on the domestic economy.
AUD/USD rose 0.2% to $0.6396 as data showed Australia’s trade balance grew much more than expected in March, although this was largely attributed to a front-loading in exports before the imposition of increased U.S. trade tariffs.
The Chinese yuan’s offshore USD/CNH rose 0.1% to 7.2871, while USD/SGD added 0.2% to 1.3095.
