Thu, May 26, 2022 @ 16:49 GMT
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Dollar Reverses Losses after Chicago PMI Beat; Pound Slips as GDP Growth Disappoints

In a relatively busy data session, investors turned their attention back to the economic calendar, while concerns over Trump’s tax proposals continued to weigh on the markets. Disappointing US inflation readings had a moderate impact on the dollar as markets were optimistic that the Fed would deliver another rate hike in December after Fed Chair, Janet Yellen, supported on Tuesday a gradual rate hike despite the weakness in inflation. The pound was the worst performer following weaker GDP growth readings.

The core PCE price index which is the Fed’s preferred inflation measure added losses to the dollar on Friday after September’s estimates appeared weaker than anticipated. While forecasts for the annual rate stood at August’s mark of 1.4%, the index edged down by 0.1 percentage points to 1.3%, a level last seen in November 2015.

On the other hand, the Chicago PMI for the aforementioned month shot up to 65.2, approaching the 3-year highs reached in June and surpassing sharply the forecast of 58.5. This offset the dollar’s earlier losses, pushing its index up to 93.21.

Dollar/yen pared half of yesterday’s losses, jumping 0.22% on the day to 112.56.

According to the Office for National Statistics the final annual GDP growth for the UK missed the expectations of 1.7%, falling by 0.5 percentage points to 1.5% in the second quarter and touching the lowest growth since 2013 due to a weaker service sector in July. However, the quarterly basis figure remained unrevised at 0.3%, slightly up from the 0.2% reported in the first quarter.

Household savings ratio stuck at historically low levels in the second quarter at 5.4% despite the agency upwardly revising the previous mark of 1.7% to 3.8% due to errors in calculations.

Despite the fifth-largest economy growing slowly, the data might not change the BOE’s intentions to raise rates soon. The Bank of England’s Governor, Mark Carney, speaking on BBC radio on Friday reiterated that interest rates are likely to move upwards in "the relatively near term" but to a "limited extend" if the economy maintains its current performance. Yet, he did not confirm whether this would emerge at the November’s MPC meeting.

The pound, however, failed to gain on Carney’s remarks, falling to $1.3354 before rebounding to $1.3408. Euro/pound changed hands at a one-week high of 0.8841.

Initial Eurozone CPI readings for the month of September were just a shy lower than the forecast, hinting for a gradual removal of monetary stimulus. Headline inflation stood flat at 1.5% y/y, while analysts anticipated prices to pick up by 1.6%. Excluding food and energy items, the core equivalent was unchanged at 1.3%, whereas analysts projected for prices to grow at August’s rate of 1.2%. A day earlier, ECB chief economist Peter Praet argued that the ECB will discuss recalibration and not termination of the asset purchase program.

In other data out of the Eurozone, German unemployment fell surprisingly to a record low of 5.6% in September in contrast to retail sales which came in disappointing.

Euro/dollar breached above 1.1800 key level, trading higher by 0.25% on the day at 1.1810.

After four months of increases, the monthly Canadian GDP growth numbers in July indicated that the economy neither expanded or contracted, driving dollar/loonie up by 0.30% to 1. 2463.This was below the 0.1% expected and the 0.3% reported in June.

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