GBP Outperforms, USD Softer, Japanese CPI And BOJ Due
The USD is weaker today after a better than expected improvement in US labor data. Weekly initial jobless claims fell to 339k from the prior 355k while the market consensus was for a drop to only 350k. The 4-week moving average in claims fell for the first time in 5 weeks with a decline of -4.5k to 357.5k. The data helped to boost sentiment and equity markets (initial jobless claims have a strong inverse relationship with US stock markets). The dollar traded softer as appetite for risk increased slightly. We would be cautious ahead of tomorrow's US GDP report which is expected to show 3.0% q/q annualized growth as the recent string of soft data highlight downside risks to this view. A softer than expected reading may weigh on the buck and increase expectations for prolonged QE by the Fed.
The GBP was a big mover today and outperformed in the G10 space after UK GDP data indicated that the country avoided a triple-dip recession. While this was anticipated with a consensus growth forecast of 0.1%, the actual reading of 0.3% was a surprise and helped to lift the sterling. GBP/USD broke above recent highs and above the 38.2% Fibonacci retracement of the entire 2013 decline and the 100-day SMA and 50% Fib retracement is now in focus around the 1.56 level. EUR/GBP also dropped off amid pound strength and the pair is testing support around its 38.2% Fib level and prior low around the 0.8410 area. A sustained break below here may see a continued decline towards the 0.8285 area which is a 50% Fibonacci retracement level and rising trendline support.
Comments from Eurozone officials today showed that there is discussion within the ECB regarding additional easing. ECB member Asmussen acknowledged that growth is weak and unemployment is unacceptable, however he said that the ECB “has already done a lot” and that a rate cut pass-through to the periphery would be limited. This echoes recent comments from other ECB members that a reduction in interest rates is not likely to have a material impact and that governments must pursue action. After all, Draghi has noted in the past that monetary policy can only buy time for governments. With rate cut expectations building, the EUR was under pressure today and is lower against all of its major counterparts.
On the data front for the upcoming Asia/Pacific session are New Zealand trade balance figure for March which are expected to show an expanding surplus to 470M from 414M as exports are forecast to increase by more than imports.
Japanese consumer prices are due tonight and are anticipated to show a further drop into deflation as national CPI may fall to -0.8% y/y from -0.7%. Despite ongoing deflation, it should be noted that the CPI figures are from March which is before BOJ Kuroda took over and implemented aggressive easing. The Bank of Japan policy meeting will be tonight and with aggressive action taken just weeks ago, it is highly unlikely that addition measures are taken at this time. Governor Kuroda has said that steps taken are sufficient to achieve the 2% inflation target and that the BOJ will carefully monitor market conditions