• Economy slows dramatically
  • Fed turns dovish
  • Pound continues to rally
  • Aussie gains unexpectedly

April is shaping out to be the worst month for the dollar since October 2011.  Blows kept coming for the dollar.  Yesterday’s 1st quarter Gross Domestic Product (GDP) report and the Fed policy statement might be the one-two combination that keeps the dollar wobbly and venerable until the April employment report on May 8th.

april-30 graph

The 1st quarter GDP barely rose.  The market was expecting 1.0% growth rate, but the advance print showed 0.2%, pulled down by 7.2% drop in export and 2.5% drop in business investment.  That said, I no longer can accept the bad weather as an excuse for the slowdown because residential housing sales increased by 1.3%.  To me, this suggests that the strong dollar is the main offender, and it is hurting businesses.

The Fed Minutes seem to agree.  They specifically acknowledged “business fixed investment softened” and “exports declined.”   In regard to the Fed’s timing of the rate hike, they said:

It will be appropriate to raise the target range for the federal funds rate when it has seen further improvement in the labor market and is reasonably confident that inflation will move back to its 2 percent objective over the medium term.

In other words, the Fed has ruled out June, and even September looks questionable now.  The “medium” term usually implies six months.  For this reason, I’m betting that the Fed will move in October unless the May 8th employment report shows a significant improvement.  Stay tuned.

Meanwhile, this morning’s March Personal Income and Spending reports showed that at least personal spending help up in March.  As a result, the dollar has found some temporary support for now.

EUR-USD moved 1.25% higher yesterday to its highest level in nearly eight weeks.  Economic data from the Eurozone was mixed. Business confidence improved, but consumer prices in Germany dropped minus 0.1% in March.  I suspect that we will see a minor correction on the euro today.

GBP-USD rose for the 7th consecutive days.  UK data was mixed with house prices rising, but retail sales growth slowing on the back of anemic wage growth.  There are no major economic reports or events today.

USD-CAD fell slightly yesterday on the US dollar weakness.  I expect to see a small drop in today’s February GDP report, and the loonie may retrace its recent rally for now.

AUD-USD slid lower. I’m surprised by this move given that iron prices rebounded strongly yesterday.  I confess that I have no good explanation.  The Aussie dollar should be stronger today. I’ll try to find the hidden driver for tomorrow’s update.

Have a good Thursday!