US Dollar Mixed Ahead of Q1 GDP Data

US Dollar Mixed ahead of Q1 GDP Data

The US dollar was mixed against its major trading partners early Monday – down versus the European currencies, up versus the yen and Canadian dollar — as markets prepare for a busy data schedule this week amid the absence of comments from Federal Reserve officials during the quiet period.

The week starts out light Monday, with only the Chicago Fed’s National Index for March and the Dallas Fed’s manufacturing index for April. Highlights for the remainder of the week include home price data, new home sales and consumer confidence readings on Tuesday.

Also, advance trade and weekly oil stocks will be released Wednesday, the first look at Q1 gross domestic product growth Thursday, personal income and spending data and the University of Michigan Consumer Sentiment Index Friday.

Volatility levels in FX markets remain relatively subdued ahead of next week’s central bank policy meetings in the US and the Eurozone, ING Economics Chris Turner said in a brief.

“Regarding short-term FX trends, we would continue to describe the mood as ‘defensive’. Commodity currencies are under pressure in line with weaker oil prices.

“Our commodities team thinks Brent could stay on the back foot this week given that refinery margins are trending lower – suggesting recent weakness in the Canadian dollar and Norwegian krone may not reverse”, Turner added.

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At the same time, US sovereign CDS spreads continue to rise as investors take out hedges against messy negotiations over the US debt ceiling. This week the House Republicans may well vote through a debt ceiling extension into next year – but one which the Democrat-controlled Senate has vowed to reject given the embedded spending reductions.

ING Economics expect little progress on the debt ceiling this week. Unless Friday’s US March core PCE inflation markedly surprises above the consensus 0.3% month-on-month figure, expectations for one last Fed hike look locked in and we doubt the dollar needs to rally too much further.

Which currencies should outperform? Friday sees the first Bank of Japan policy meeting under the new governor, Kazuo Ueda. The consensus expects it is too early to see any adjustments yet to the BoJ’s Yield Curve Control policy – though changes may be forthcoming at the June meeting.

However, given the still bubbling US banking crisis, analysts think the recent USD/JPY rally stalls under 135 and we remain happy with our 128 targets for the end of the second quarter.

Given a DXY heavily weighted towards Europe and Japanese currencies, analysts said they would favour DXY drifting back to the recent 101.50/65 lows, with a bias towards 101.00 later in the week. 

Fed officials remain in a quiet period until the May 2-3 Federal Open Market Committee meeting. A quick summary of foreign exchange activity heading into Monday:

EUR-USD rose to 1.1012 from 1.0989 at the Friday US close and 1.0972 at the same time Friday morning. There are no EU data on Monday’s schedule. The next European Central Bank meeting is scheduled for May 4. ECB member Fabio Panetta is scheduled to speak at 9:30 am ET.

GBP-USD rose to 1.2447 from 1.2442 at the Friday US close and 1.2387 at the same time Friday morning. There are no UK data on Monday’s schedule. The next Bank of England meeting is scheduled for May 11.

USD-JPY rose to 134.5641 from 134.0252 at the Friday US close and 133.8372 at the same time Friday morning. There are no Japanese data scheduled for Monday, so markets will look ahead to the Bank of Japan meeting Thursday and Friday.

No change is expected at this week’s meeting, but the Bank of Japan (BoJ) could begin to prepare markets for a shift toward less accommodation over the summer.

USD-CAD rose to 1.3544 from 1.3532 at the Friday US close and 1.3529 at the same time Friday morning. Canadian home price data and wholesale sales are scheduled to be released later and the next Bank of Canada meeting is scheduled for June 7.

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