US dollar sinks on lower-than-expected GDP data

Verified By Raqueem Khan
Edited by Vani Rao

JPY rises 0.70% against US dollar on Russia and Ukraine political unrest

Weaker-than-expected gross domestic product (GDP) data triggered a slump in the US dollar against the GBP during the week ended 28 February 2014. The US dollar slid against GBP on Friday, post the announcement of disappointing US production, indicating softness in the US economy.

The US Government revised downwards the fourth-quarter GDP growth to an annual rate of 2.4%, lower than the preliminary forecast of 3.2%. Analysts were anticipating a downward revision to 2.5%. On the other hand, the UK GDP expanded 0.7% for the quarter ended December. The GBP/USD finished Friday’s session at 1.6745, up 0.34%. For the week, the GBP gained 0.53%, as shown in the graph below. At the time of final reporting, the GBP/USD pair was trading at 1.6738, down 0.04%.

Source: Bloomberg
Source: Bloomberg

The UK and the US are scheduled to release key data in the forthcoming week, which are likely to cause significant movements in the currency market. Analysts will be looking forward to changes in the relative price of the US and the GBP in the coming week in the light of release of key data by both the economies. However, crucial data releases by both the US and the UK are expected to have a significant impact on the US dollar in the weak ahead.

On Monday, March 3, the UK will announce data on manufacturing activity and net lending to individuals, while the US will release data on personal spending, in addition to the data on manufacturing activity, which will be released by the Institute of Supply Management (ISM).

The UK will publish data on construction sector activity on Tuesday, March 4.

On March 5, the UK is expected to release data on the consumer sector activity, an important measure of country’s overall economic health. On the same day, the US will announce data on release the ADP National Employment Report on private sector job creation, along with the ISM report on service sector activity.

On March 6, the Bank of England (BoE) will announce benchmark interest rates. The US is to publish the weekly report on initial jobless claims and data on factory orders.

Finally, on Friday, March 7, the UK will release data on consumer inflation. The US will report important government data on nonfarm payrolls and the unemployment rate.

Like the GBP, the US dollar ended the week lower against the Euro on Friday. The US dollar slumped following the release of its fourth-quarter GDP data from the US Commerce Department. The reported GDP of 2.4% trailed the analysts’ estimates of 2.5%, raising doubts about the economic recovery of the country.

The Euro rose to its two-month high of 1.3824 against the US dollar, before finishing the week at 1.3802, on Friday, 28 February 2014. The EUR/USD pair ended the week up 0.49%, as shown in the graph below. At the time of final reporting the pair was trading at 1.3789, down 0.09%.

Also, Friday’s official data showed that the Eurozone annual rate of consumer inflation rose to 0.8%, above the analysts forecast of 0.7%.

b5The Eurozone and the US are scheduled to release key data in the next week, which is likely to cause significant movements in the currency market globally. Analysts will be looking forward to change in relative price of the US and the Euro in the coming week in the light of release of key data by both these economies.

On Monday, March 3, in the Euro Zone, Spain and Italy are to announce data on manufacturing activity. Meanwhile, the US will release data on personal spending and manufacturing activity.

On Tuesday, March 4, Spain is to release data on the change in the number of people unemployed.

On Wednesday, March 5, the Euro Zone is slated to release data on retail sales, the government measure of consumer spending. Meanwhile, Spain and Italy are to release data on service sector activity. On the same day, the US will release the ADP report on private sector job creation and service sector activity.

The European Central Bank (ECB) will announce its benchmark interest rate, to be followed by a press conference with President Mario Draghi. The US is to release reports on initial jobless claims and data on factory orders, both data will be announced on March 6.

To round off the week, on Friday, March 7, Germany is to publish data on industrial production. On the same day, the US will release key government data on non-farm payrolls and unemployment rates.

USD/JPY

The USD/JPY pair hit a one-month low of 101.54 on Friday. The pair ended the week 0.70% lower at 101.80, as shown in the graph below. At the time of reporting, USD/JPY was trading at 101.4000, down 0.37%. The downward movement of the US dollar was prompted by below than anticipated fourth-quarter GDP numbers, coupled with rising concerns over tensions in Ukraine and a weaker Chinese yuan.

Demand for the Yen consolidated amidst escalating political and military tensions between Russia and Ukraine, following reports about the invasion of airports in the pro-Russia Crimea region. The political unrest between two countries intensified after Russia’s parliament authorized President Vladimir Putin to use military force in Ukraine. Ukrainian Prime Minister Arseniy Yatsenyuk remarked that Russia is “on the brink of disaster”.

Source: Bloomberg
Source: Bloomberg

Analysts will be looking forward to data releases by Japan and the US in the coming week. To start of the week, on March 3, Japan is to release data on capital spending. Meanwhile, the US will come up with data on personal spending and manufacturing activity.

On Tuesday, March 4, Japan will produce a report on average cash earnings.

On Wednesday, March 5, the US will publish report on private sector job creation, along with a report on service sector activity.

On Thursday, March 6, the US will release its initial jobless claims and data on factory orders on Thursday.

Finally, on March 7, government data on non-farm payrolls and the unemployment rates are expected from the US.

RUB/USD

The US dollar hit an all-time high of 37.00 rubles on Monday, March 3, following the Bank of Russia’s decision to hike interest rates to 7% from 5.5%. The Bank of Russia’s move came as a surprised one as the Russian ruble plummeted to record lows following Moscow’s intervention in Ukraine.

The decision to increase interest rates is aimed at avoiding exposure to inflation and financial instability associated with the recently witnessed increased volatility in the financial markets. However, the decision to hike interest rates is a temporary one.

At the time of final reporting, the USD/RUB pair was trading at 36.43, up 1.24%.

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