US Economic Growth Slows Down in First Quarter, Dollar Reacts

The first quarter saw US economic growth slow down, and the dollar reacted. The BoJ may raise rates. The market awaits the PCE Price Index. Central banks maintain a stance. Mixed sentiment prevails.

In the latest session in the United States, economic indicators painted a mixed picture, with GDP growth for the first quarter falling short of expectations. According to the advance estimate, the American economy expanded at a modest 1.6% year-on-year (YoY), significantly lower than the forecasted 2.5% and marking the slowest growth since 2022’s third quarter. Sluggish expansion occurred due to a slowdown in consumer spending, non-residential investment, and moderated government spending.

However, amidst this subdued growth, the labor market showed resilience as unemployment claims came in lower than expected. With 207,000 claims filed last week, below the forecasted 214,000, the data hinted at ongoing strength in job creation and a sturdy labor market. Typically, lower unemployment claims suggest increased demand for the dollar, reflecting positively on the currency’s performance.

Following the release of these data points, the dollar index (DXY) initially surged to 106 from 105.60, only to reverse sharply and settle around 105.55 by the session’s end.

US Economic Growth Slows Down in First Quarter, Dollar Reacts

Outlook for Asia Session and Key Events

Looking ahead to the Asia session, all eyes are on the Bank of Japan (BoJ), which could raise its key policy rate again. With Japan’s mounting inflationary pressures and the yen witnessing significant depreciation in 2024, there’s growing pressure on the BoJ to adjust rates further. Should the BoJ enact another rate hike and communicate a hawkish stance on future monetary policy during Governor Kazuo Ueda’s press conference, the yen may strengthen, potentially causing fluctuations in currency pairs like USD/JPY.

Market Focus on the PCE Price Index

Regarding key events for the day, market participants are closely watching the Personal Consumption Expenditures (PCE) Price Index, the Federal Reserve’s preferred measure of inflation. With price pressures steadily building in the US, a surprise to the upside in the PCE Price Index could reignite bullish sentiment for the dollar during the US session.

Currency and Central Bank Outlook

Across various currencies, central banks have maintained their respective stances. The Federal Reserve’s Federal Funds Rate target remains unchanged, focusing on achieving maximum employment and 2% inflation. Similarly, other central banks like the Reserve Bank of Australia (RBA) and the Bank of England (BoE) have kept their rates steady while closely monitoring inflationary trends.

Conclusion: Mixed Sentiment Prevails

As markets digest the latest economic data and anticipate central bank actions, a mixed sentiment prevails across currencies and financial markets. While the US economy shows signs of moderate growth, the labor market remains resilient, impacting the dollar’s performance. With key events like the PCE Price Index and central bank meetings on the horizon, investors remain vigilant for further cues on economic trajectories and monetary policy shifts.

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