Greenback retreats against peers on weak data; euro closes higher

Sterling pound rallies on BoE rate hike hopes

United States

The

Federal Reserve does not appear to be taking a particularly vague view of the economic outlook, with last week’s Federal Open Market Committee statement describing the winter slowdown as partly a function of temporary factors, and thereby suggesting growth will improve going forward as those factors diminish. The FOMC stated that the drop in non-energy import prices was one of the factors keeping inflation below the 2% target. That is very important and something the markets would view as a potential medium-term weakness to the USD, as lower inflation and slower growth could delay Fed rate hikes.

On the foreign exchange side, the US Dollar started the week on a weak note against its major counterparts as the index dropped to 94.39 from a high of 97.28. Moreover, series of negative economic data coming out of the US combined with the FOMC meeting statement last Wednesday, whereby they said, "to support continued progress toward maximum employment and price stability, the Committee reaffirmed its view that the current 0-0.25% target range for the federal funds rate remains appropriate. In determining how long to maintain this target range, the Committee will assess progress both realized and expected toward its objectives of maximum employment and 2% inflation”. This statement fuelled the belief that the FED would not raise interest rates until the end of 2015 and would likely be raised at a slower-thanexpected pace, which pushed the US Dollar lower. The Dollar index closed for the week at 95.21.

The Euro started the week at the 1.0820 levels and then rallied sharply reaching a two-month high of 1.1289, after signs that Europe emerged out of the risk of deflation. Eurozone consumer prices remained flat in April after falling for four consecutive months, largely reflecting slower decline in energy prices. The currency closed for the week at 1.1199. Cable opened the week at the 1.5167 levels and then rallied sharply reaching a three-month high of 1.5496, supported by the revelation that the Bank of England’s next move in rates was probably to the upside. However, investors sold the Sterling after worse than expected UK manufacturing and GDP data. The Sterling closed for the week at 1.5139.

The Japanese Yen opened the week at the 118.89 level against the US Dollar. The Yen strengthened reaching a low of 118.47, after the Bank of Japan abstained from increasing its monetary stimulus. Soon after, the currency started to lose momentum and weakened against the US Dollar, reaching a high of 120.28, after Governor Kuroda reiterated he would not hesitate to act if the 2% inflation target proves hard to reach.

US consumer confidence surprisingly fell this month amid a slowdown in job creation and concerns about nearterm economic outlook. Index of consumer confidence dropped to the lowest level in four months at 95.2 in April, down from a revised 101.4 in the prior month, which had reported as 101.3. The market forecasts were for the index to inch slightly higher to 102.6. Consumer expectations for economic activity over the next six months plunged to 87.5 from 96.0. Consumer confidence, which had rebounded in March, gave back all of the gain and more in April.

The economy in the US barely grew in the first quarter, affected by slumps in business investment and exports, after oil prices plunged and the Dollar surged. Q1 GDP came in much weaker than expected, rising just 0.2% y/y versus an expected gain of 1.0%. The biggest miss was on net exports, subtracting 1.3% on growth, due in part to bad weather, west coast port strikes and USD strength. The headline GDP deflator fell 0.1%, not too surprising since we know lower energy prices and USD strength are keeping headline inflation down.

The number of Americans applying for unemployment benefits declined last week to the lowest level in 15 years. The advance figure for seasonally adjusted initial claims was 262,000, a decrease of 34,000 from the previous week's revised level. This is the lowest level for initial claims since April 15, 2000 when it was 259,000. The previous week's level was revised up by 1,000, from 295,000 to 296,000. However, market forecasts had expected the gauge to climb to 290,000 in the week.

Manufacturing in April held at the weakest pace in almost two years, encouraging factories to pull back on hiring as they await stronger demand in the US and abroad. The Institute for Supply Management’s index was unchanged at 51.5, the lowest since May 2013. Readings above 50 signals expansion, but the lack of improvement reflects the lingering effects of a stronger Dollar and low oil prices on capital spending and exports that caused the economy to stall in the first quarter.

Europe

The Euro area seasonally adjusted Unemployment Rate was 11.3% in March 2015, unchanged compared with February 2015 but down from 11.7% in March 2014. Among the member States, the lowest Unemployment Rate in March 2015 recorded in Germany 4.7% and the highest in Greece 25.7% in January 2015 and Spain 23.0%. Compared with a year ago, the unemployment rate in March 2015 fell in 22 Member States. The largest declines showed in Ireland 12.0% to 9.8% and Spain 25.1% to 23.0%. The rises showed in Croatia 17.3% to 18.2%, Finland 8.4% to 9.1%, Italy 12.4% to 13.0% and France 10.1% to 10.6%.

Consumer prices continued flat in April after decreasing for four consecutive months, the Eurozone consumer inflation recorded zero growth in April, adding to signs that deflationary fears have been easing, largely reflecting slower decline in energy prices. The index of consumer prices showed no change in April following a 0.1% fall in March and 0.3% decline in February. Core inflation, which excludes food and energy components, climbed 0.6% in April, compared to the same pace of growth seen in the prior month.

United Kingdom

Britain's economy slowed more than expected in the first quarter of 2015 in a setback for Prime Minister Cameron who has staked his re-election campaign for next week on the latest economic recovery. UK’s GDP grew by 0.3 % in the January-March period compared with the last three months of 2014 when quarterly growth was 0.6 %, marking the slowest growth since the fourth quarter of 2012. However, economists expect that the weak GDP data is likely to revise higher in line with the stronger activity implied by business surveys and other activity indicators.

The UK’s manufacturing growth suffered its largest slowdown in more than two years, adding to worries about the ongoing economic recovery in the United Kingdom. The purchasing manager’s index for manufacturing dropped to a seven-month low of 51.9 in April from a downwardly revised 54.0 in March, the biggest one-month fall since February 2013. The slowdown in the rate of increase of output occurred jointly with weaker growth of incoming new business, in turn led to a decrease in the volume of new work received from abroad. Growth remains largely consumer-led, with the strong performance of the consumer goods sector in contrast with other sectors.

Japan

Bank of Japan Monetary Policy Meeting

The Bank of Japan abstained from increasing its monetary stimulus even after inflation rates came to a halt, with Governor Kuroda betting it will reemerge as the impact from lower oil prices lessens. At the monetary policy meeting held last week, the policy board of the Bank of Japan decided by an 8-1 majority vote, to conduct money market operations so that the monetary base will increase at an annual pace of about JPY 80 trillion as forecasted by market economists.

Kuwait

Kuwaiti Dinar at 0.30150 The USDKWD opened at 0.30150 on Sunday morning.