UK services sector strengthens.

US GDP increased at an annualised rate of 1.1% for the first quarter of 2023 from 2.6% previously and below consensus forecasts of 2.0%. There was a strong increase in consumer spending of 3.7% from 1.0% previously, but this was offset by another dip in housing investment and a sharp decline in inventories for the quarter.

The PCE prices index increased 4.2% from 3.7% previously while the core PCE prices index increased to 4.9% from 4.4% and above expectations of 4.7%.

US initial jobless claims declined to 230,000 in the latest week from 246,000 previously and below market expectations of 248,000 while continuing claims held at 1.86mn. The data provided some relief after the increase in claims last week.

There was a limited net shift in Fed Funds futures with markets pricing in around an 85% chance that there will be a rate hike next week from 70% the previous day. Bond yields also increased which provided net dollar support.

Wall Street equities rallied strongly on Thursday with relief over a strong round of earnings data in the tech sector. The gains helped underpin risk appetite.

The Bank of Japan made no changes to monetary policy with the bank still aiming to hold the 10-year bond yield around 0.0% with a 0.5% cap. There was a slight shift in forward guidance, but the review on monetary policy is scheduled to take 12-18 months, dampening expectations of any near-term move to tighten monetary policy which hurt the yen.

The US PCE prices data will be released on Friday. The core annual rate is forecast to edge lower to 4.5% from 4.6%. The latest employment cost index will also be released at the same time.

The German inflation data is due on Friday and the headline rate is forecast to edge lower to 7.3% from 7.4%.

The Euro posted a net loss on Thursday and remained weaker despite a recovery from intra-day lows. The dollar faded against European pairs as US equites moved higher. EUR/USD found support just below 1.1000 but settled only just above 1.1000 on Friday.

Higher US bond yields curbed yen support. USD/JPY was unable to hold above 134.00 on Thursday. The Bank of Japan decision to make no changes to monetary policy triggered sharp yen losses with USD/JPY jumping to near 135.00.

The Swiss franc lost ground as equities made headway. EUR/CHF advanced to 0.9860 with a further USD/CHF recovery to around 0.8950.

Sterling was underpinned by a recovery in US equites and held a firm tone. GBP/USD advanced to near 1.2500 in New York but was held below this level.

Commodity currencies posted gains later in New York as equities posted gains. AUD/USD settled around 0.6630 before drifting to 0.6615 on Friday amid a firm US dollar. USD/CAD dipped below 1.3600 before trading just above this level on Friday.

Economic Calendar