Dollar rose significantly against the euro, by updating the two-month high, aided by the statistics on the US and expectations of today’s speech by Fed Janet Yellen. Previously published data showed that US GDP growth for the 1st quarter was revised upwards, which increases the likelihood of the Fed raising interest rates soon. Bureau of Economic Analysis reported that real GDP grew by 0.8 per cent per annum in the first quarter of 2016. In preliminary estimates, real GDP grew by 0.5 per cent. In the fourth quarter, real GDP increased by 1.4 percent. Real GDP growth in the first quarter primarily reflected positive contributions from personal consumption expenditures (PCE), residential investment in fixed assets, as well as the costs of state and local authorities, which were partially offset by a negative contribution from residential fixed capital investment, exports, private investment in inventories and federal government spending. Imports, which is deducted in the calculation of GDP, decreased.
Meanwhile, the final results of the studies submitted by Thomson-Reuters and Institute of Michigan, revealed in May US consumers felt more optimistic about the economy than in the previous month. According to the data, in May consumer sentiment index rose to 94.7 compared with a final reading of 89.0 in April and the preliminary value of 95.8 points in May. It is estimated that the index should make 95.4.
As for the performances Yellen, she noted that in case of further improvement in the economy and the labor market, it is advisable to gradually and gently raise rates. “Based on the data, economic growth accelerated. Probably, in the following months, the rate hike would be appropriate “, – said Yellen. “Almost all the indicators point to the fact that the labor market situation has really improved. We are close to reaching the level of unemployment, which, according to most economists, corresponds to full employment. However, productivity growth is very weak, and we do not see a significant acceleration of wage growth, suggesting the preservation of free resources on the labor market “, – added the head of the Fed. Today futures on interest rates Fed indicate that the probability of a rate hike in June is 34% against 28% before the speech Yellen. Meanwhile, the chances increase rates in July increased from 55% to 62%.
The yen fell against the dollar, returning to yesterday’s low, which was caused by statements of Fed Yellen. Traders also remain cautious against the yen after the G7 leaders in a statement confirmed the commitment to avoid “competitive devaluation” of their currencies and cautioned against “disorderly” currency fluctuations. Group of Seven industrialized nations pledged to strive for sustainable global growth, leveling the differences in monetary policy and stimulate the economy. “Global growth – our top priority”, – said G7 leaders. The Group also outlined the commitment to market exchange rates and the elimination of “competitive devaluation” of currencies, preventing sharp jerks exchange rates. It represents a compromise between Japan, which threatened to intervene to block the spike in the yen and the US who oppose market intervention.
On the trading dynamics have also influenced the news that Japanese Prime Minister Abe could once again defer the planned increase in sales tax in Japan. Today it is the first time he admitted this possibility, although according to his advisers, he considered it before. Earlier, Abe and others have provided the Government of Japan stated that the increase in sales tax next year will continue the planned scenario, if the global economy does not face a new world financial crisis.
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