The Risk-off sentiment has guided the strengthening of the USD against most of the major currencies this week, including the euro. EUR/USD was further pressured by the release of the German Gross Domestic Product (GDP) report yesterday.
The euro had fallen about 0.25% to print a two-month low of 1.0714 against the U.S. dollar at the beginning of this European session.. German GDP growth is recorded at -0.3%.
It was for quarter-over-quarter in Q1/2023, even though the consensus only anticipates a pullback to -0.1%. This is a negative performance for the second consecutive quarter.
That is especially after reaching -0.4% in the fourth quarter of 2022, thus confirming that Germany is experiencing a recession. The news lowered the outlook for the euro while worsening market sentiment.
US debt Ceiling Still Becomes the Major Risk
Moreover, some other Eurozone economic data tends to miss lately. The analysts have seen several divergent cross Atlantic macro data this week. Besides that, althouGermany is not the euro, economic momentum is very weak.
It was said by Stefan Mellin, asenior analyst at Danske Bank. Besides that, he was also highlighted the PMI and Ifo data before. Meanwhile, the USD was supported by rising interest rate expectations and demand for safe-haven assets.
Uncertainty in the US government debt ceiling negotiations continues to be a major risk looming over the world and prompting market participants to turn to the US dollar.
FOMC meeting minutes released this morning showed "almost all" Fed employees saw a risk of rising inflation. This is in line with the hawkish rhetoric leveled the Federal Reserve officials throughout the week.
25BP Rate may be Done in June
Speculation is mounting for another 25 basis point Fed rate hike in June. Democrats and Republicans have alternated on "progress" in negotiating the federal debt ceiling.
However, it seems that markets are concerned about a lack of real commitment from both sides. Leading debt rating agencies are increasingly paying close attention to this issue.
Fitch has placed the United States debt rating on a negative watch list. Moody's is also prepared to downgrade its U.S. debt rating in the event of a default, even if the default lasts only a short time.
Each institution currently rates the America’s debt at AA-plus and AAA ratings. Gold moved down and recorded a decline in trading on Wednesday yesterday.
US Debt Issue Presses the Gold
The precious metal is a little lacklustre because investors are still watching the development of the US debt issue. As a result, gold recorded weakness around the closing price of $1957 per Troy ounce.
The first quarter 2023 American GDP advance released on April 27 showed a growth of 1.1% (or +1.1%). It was lower than the forecast of 2.0% growth, and the lowest since the second quarter of 2022.
The increase in GDP was mainly due to increased consumer spending, investment outside the housing sector, and exports. On the other hand, investment in the housing sector contracted.
Jobless Claims measures the number of claims for unemployment benefits over the past week. It is alsothe earliest fundamental data related to the number of workers.
US Jobless Claims Decreased by 22k
The Jobless Claims data is also an early indicator of consumer spending that will affect the inflation rate. There are 2 data that are considered, namely Initial and Continuing Jobless Claims.
Last week, the United states jobless Claims decreased by 22,000 to 242,000 claims. That was lower than the estimated 253,000 claims.
Meanwhile, the average claims in the last 4 weeks dropped to 244,250. For the week, it expects claims for unemployment benefits to rise to 249,000.
A lower-than-expected release result will tend to cause the USD to Strengthen in the market. That is why; market participants should prepare their strategies for that.