Dollar a touch softer - Bank of Ireland Corporate

The dollar ended the week a touch softer against both the euro and sterling, closing at around $1.1150 and $1.29 respectively, despite stronger than expected GDP growth data out of the US on Friday. This left the pound trading at around 86p against the single currency at the close of play and so largely unchanged on the week as a whole. Meanwhile, bond yields in the core markets fell last week, with US 10-year yields at 2.50% and equivalent German yields back in negative territory at -0.02%

The US economy expanded by 0.8% q-o-q in the first quarter of this year, or an annualised rate of growth of 3.2%, which was well ahead of the consensus forecast of 2.2% and a pick up from the pace of activity recorded in the final quarter of 2018 (also 2.2%). Consumer spending slowed in Q1, but this was more than offset by sizeable positive contributions to GDP growth from net exports and inventory building

Notwithstanding strong growth, Friday’s GDP report also showed the annual rate of both headline and core PCE inflation in the US slowed from the final quarter of 2018, to 1.4% and 1.7%, respectively, which is probably what caught the markets’ attention the most hence the dip in the dollar and bond yields post the release of the data on Friday.

S&P affirmed Italy’s credit rating at BBB after hours on Friday – there had been some concern last week that a downgrade might be in the offing – while in Spain, the Socialists (the outgoing government party) won the most seats in the weekend election but fell short of a majority, so a few weeks of political horse-trading probably lies ahead as attempts are made to form a new administration

Both the Fed and Bank of England make monetary policy announcements this week – on Wednesday and Thursday respectively – but both are expected to keep interest rates on hold

It’s a busy week ahead for economic data, with GDP (Tuesday) and inflation (Friday) in the Euro area and the latest employment report (Friday) in the US, while manufacturing PMIs are due in the main economies throughout the week