The dollar took a breather on Friday, having reached fresh 2019 highs against most major currencies and on indices such as DXY. Friday’s first-quarter GDP data came in well above expectations, rising an annualised 3.2% compared to a median forecast of 2.3%. Net trade and inventory build made up more than half of the big 3.2% annualized growth rate in Q1, but consumption was less impressive. Inflation was also fairly subdued, with the core deflator up just 1.3%. The Fed is taking a relaxed approach to inflation risk as it is, and will see little impetus for hawkishness in Friday’s figures. It’s a big week for dollar data, starting today with the PCE Price Index, the Fed’s preferred inflation measure, at 13:30 BST. Later in the week, the FOMC’s latest rate decision will be announced, accompanied by a press conference. Elsewhere, trade talks between the US and China continue, with both sides having made a series of optimistic statements about progress last week and senior US officials due in Beijing on Tuesday.


Sterling remains at suppressed levels with little traction in the Brexit process and a lacklustre economic calendar providing no source of resistance against the broad US dollar move last week. This week holds the potential for a bounce in the pound, however, with the re-emergence of economic data to the calendar. The Bank of England will meet on Thursday and although the central bank remains in a Brexit bind, the inflation report may prove enough for Governor Carney to keep a hawkish bias. Thursday will also see the release of the first set of economic projections since the Brexit extension. Apart from the BoE, April PMIs will be released Thursday and Friday. March’s releases showed a mixed picture for the UK economy, with the construction index inflated by stockpiling and the service sector flashing red. Brexit negotiations continue in the background this week ahead of next month’s European elections. Conservative Chairman Brandon Lewis told the BBC that there was still time for Parliament to reach an agreement prior to the May 23rd vote.


Like most of the G10 the euro is up against USD when compared to last week’s lows, but aside from this minor rally, EURUSD remains lower than at any time since 2017. Italy dodged a credit rating downgrade on Friday, as S&P kept Italy’s rating at BBB with a negative outlook, the lowest investment grade. Spain’s elections delivered a plurality to the Socialist party over the weekend, although several weeks of coalition negotiations now loom and are likely to add uncertainty. The ratings agency expected only 1% growth this year, leaving the bar low for any potential upside surprises. The euro calendar will be busy this week, with the highlights including tomorrow’s Eurozone growth figures, and Purchasing Managers Indices on Thursday.


The loonie shrugged off Friday’s big losses for crude oil, which marked the third consecutive day in the red for the major oil indices. The fact that the loonie was unaffected by the falls in crude is fitting, given that it has largely failed to benefit from the substantial rally of the past 6 months. Fundamentals, especially concerns about domestic growth, are driving the loonie to a greater extent at the moment, an important point to remember ahead of tomorrow’s monthly Gross Domestic Product data. The release will be followed by testimony from senior Bank of Canada decision makers Stephen Poloz and Carolyn Wilkins to lawmakers.