Consensus has shifted to -0.1% QoQ annualised for today’s 1Q US GDP print following a wider than expected trade deficit for March. Details of the report, especially on consumer spending, will be crucial for the market reaction. We still think equities’ stabilisation on Trump’s softer tariff tone can offset the unsupportive data flow for the dollar.
USD: Equities Providing Shield Against Bad Data
The US dollar continues to be pulled by opposing forces: US President Donald Trump’s scaling back of some protectionism measures versus data evidence of a US slowdown. Ultimately, the tiebreak for FX impact seems to be equities performance. US stocks had a good day yesterday as some tariff exemptions for auto parts outweighed poor data, and the dollar was moderately stronger across the board. We also believe some month-end rebalancing contributed to supporting the dollar.
Today, all eyes will be on the US first-quarter GDP print. Economists have revised their forecasts lower following yesterday’s much wider-than-expected goods trade deficit figures for March, and consensus now sits at -0.1% quarter-on-quarter annualised. Our economics team agrees that a negative read is quite likely.
Markets will, anyway, look at how much of the slowdown is attributable to rising imports due to pre-tariff hoarding relative to an effective slowdown in consumption. We suspect personal spending figures may not look that grim, and that the dollar can show some resilience to a negative GDP print today.
The other two key releases today are the ADP employment figures for April and March’s core PCE (the Federal Reserve’s preferred measure of inflation). The latter is expected to slow down to 0.1% month-on-month, which may lead to some Fed members feeling more comfortable when discussing easing prospects, and can potentially fuel some momentum to fully price in a cut in June (now 17bp factored in).
We have a neutral bias on the dollar today. While the data flow should continue to prove a net-negative, markets are clearly welcoming Trump’s efforts to ease some tariff pain. We still believe that a constant flow of constructive news on trade (especially regarding China) is needed to keep equities and the dollar supported, but for now, it might be enough to let the dollar stabilise into Friday’s payrolls.
EUR: Euro Less Reactive to Domestic Data
It’s also GDP day across the eurozone today. France has already released its first-quarter preliminary figure of 0.1% QoQ, in line with market expectations. Germany is up next this morning, with consensus centred for a modest 0.2% QoQ rebound. The eurozone numbers are released at 11:00am CET, and are expected to show 0.2% QoQ first-quarter growth, the same as in the fourth quarter of last year.
Barring major deviations from consensus, we doubt these pre-tariff GDP figures will have much impact on the euro. The same can probably be said about April’s preliminary CPI prints for Germany and France, also due this morning. Markets are fully buying into the European Central Bank’s dovish narrative, and we think that it will take a much softer-than-expected CPI read to trigger even more dovish repricing.
The bar is equally high for a material euro impact in case of hotter than expected inflation, given the ECB’s seemingly relaxed stance on price shocks and the euro’s strengthening offering some shield.
We think EUR/USD could start to find some anchoring around the 1.140 level. We have seen some strong buying in the dips of late around 1.130, and markets may be lacking the conviction to push it back above 1.150 with US equities finding some stabilisation.
Disclaimer: This publication has been prepared by ING solely for information purposes irrespective of a particular user’s means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more