Yen weaker after Q1 GDP, risk events in focus
The yen weakened in early Asian trade as GDP for the first quarter came in weaker than expected and investors looked ahead to China and Australia trade data regionally a trio of events that heighten market risk, an ECB policy review, the U.K. general election and testimony by fired FBI director James Comey to Congress.
Japan GDP for the first quarter led a slew of data, with quarter-on-quarter figures coming in weaker than expected at a gain of 0.3%, compared to 0.6% seen and the annual pace at 1.0% compared with 2.4% expected. As well, the seasonally adjusted current account came in at a surplus of ￥1.81 trillion, wider than the ￥1.62 trillion forecast.
Ahead, Australia's trade balance is expected at a surplus of A$1.950 billion for April, the data a bit of a lag. China trade data is expected to show a surplus of $46.32 billion for May with exports up 8.5% and imports up 7.0% year-on-year.
The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, rose by 0.03% to 96.70.
Overnight, the dollar pared gains against a basket of currencies on Wednesday, as the euro recovered from a slump, following reports that the European Central Bank (ECB) would lower its inflation targets at Thursday’s policy announcement.
The euro dipped to $1.1204, down 0.64%, against the dollar, after a report surfaced on Tuesday, suggesting the ECB will cut its inflation forecast for the next three years to 1.5% amid a slump in energy prices, according to officials familiar the matter.
In March, the ECB had estimated inflation for 2017, 2018 and 2019 at 1.7%, 1.6% and 1.7%, respectively.
An inflation rate of 1.5% inflation would be well below the ECB’s target of maintaining inflation rates of below, but close to, 2% over the medium term
The report comes a day ahead of the ECB interest rate decision and press conference from ECB President Mario Draghi, who in speech last Monday, said that stimulus and support measures were still needed to boost in inflation.
The dip in the euro spurred a rise in dollar, but gains were capped as investors remained wary about potential headwinds on Thursday, as former FBI chief James Comey testifies about Russia’s alleged involvement in the U.S election.
The dollar has wiped out most of the gains achieved since Donald Trump was elected U.S. President as investors are growing more skeptical about the Trump administration’s ability to deliver on its pro-growth economic agenda, which includes tax-reform.
Investors braced for the UK election on Thursday, with pollsters predicting that British Prime Minister Theresa May will win the most seats in the election.
The oil-linked Canadian dollar came under pressure after oil prices tumbled as much as 5%, following the release of a weekly report, showing that U.S.