The US dollar finally gave some breathing space to the pound on Thursday following nearly a whole month of dollar strength. The catalyst for this dollar weakness was predominantly down to the US GDP figure for Q1 which came in at 2.4% compared to the 2.5% expected figure and US pending home sales data only showing a rise of 0.3% in April falling 1.5% from the previous month.

The US dollar finally gave some breathing space to the pound on Thursday following nearly a whole month of dollar strength. The catalyst for this dollar weakness was predominantly down to the US GDP figure for Q1 which came in at 2.4% compared to the 2.5% expected figure and US pending home sales data only showing a rise of 0.3% in April falling 1.5% from the previous month.

This fundamental data merely compounded investor’s fears that the recent performances in the stock markets cannot last indefinitely. At this time, profit taking and safe haven flows seem to favour the Japanese yen rather than the US dollar, given that it is of relatively better value. This left the pound up 0.8% against the US dollar only 24 hours after testing key support levels.

The dollar weakened generally across the board allowing the euro to rise to a three week high. The dollar movements largely left the pound untouched against the euro despite news that the Cypriot banking system is far from sustainable and the UK housing prices rising slightly.

Data from Japan last night showed that national consumer prices fell but industrial production improved in April.
With the US dollar pretty much in focus at the moment, investors will be focusing on consumer spending figures which are expected to fall, and the Reuters/Michigan consumer sentiment figures, which is expected to rise.  The dollar will continue to be sensitive to fundamental data, with good data suggesting that stimulus will be reduced and bad data suggesting that the Fed may look to expand its stimulus package.

Elsewhere in the markets we have seen the pound strengthen to a 5 ½ month high against both the Indian rupee and Polish zloty. But the biggest mover of the week has been the GBPZAR rate which continues to trade higher and on the week itself is up 7%.

Key Announcements:

9.30am – GBP – Mortgage Approvals (Apr): Expected to rise to 54,500.

10.00am – EUR – Consumer Price Index (YoY) (May): Expected to rise to 1.4%.

10.00am – EUR – Unemployment Rate (Apr): Expected to worsen to 12.2%.

13.30pm – CAD – GDP Annualised (QoQ) (Q1): Expected to expand to 2.3%.

13.30pm – USD – Personal Spending (Apr): Expected to fall to 0.1%.

13.30pm – USD – Core Personal Consumption Expenditure (Apr): Expected to fall to 1%.

14.55pm – USD – Reuters/Michigan Consumer Sentiment Index (May): Expected to increase to 83.7.