Yen May Extend Gains on G7 Rancor as US Dollar Falls on GDP Data

2017-05-26 08:23:00 Ilya Spivak

Talking Points:

Yen may extend gains as G7 rancor weighs on risk appetite
US Dollar may drop as revised Q1 GDP data disappoints
British Pound falls as Tories’ lead shrinks before election

The Yen outperformed in Asian trade as most regional stock exchanges suffered, boosting the perennially anti-risk Japanese currency. Energy and raw materials shares plunged in a move that probably echoed yesterday’s dramatic drop in crude oil prices. That seemed to reflect profit-taking after the extension of an OPEC-led output cut scheme offered nothing that was not already priced in.

The British Pound fell after a YouGov poll – the first since the terrorist attack in Manchester – showed ebbing support for the ruling Conservative party. The Tories’ lead shrank to 5 percent, the smallest since mid-July 2016 when Prime Minister Theresa May just took the reins after the Brexit referendum. The specter of uncertainty a mere two weeks before an election sent capital fleeing from GBP-denominated assets.

The absence of top-tier European economic data will put the spotlight on a meeting of G7 leaders in Taormina, Sicily. Disagreement about international trade norms is likely to be of greatest interest to investors. US President Trump is a vocal free trade skeptic, putting him at odds with his counterparts. Signs of growing tension may dent risk appetite, compounding Yen gains.

A revised set of first-quarter US GDP figures then comes in focus. The annualized growth rate is expected to be upgraded to 0.9 percent from the initially reported 0.7 percent. A steady string of disappointing US news-flow over the past two months opens the door for a disappointment that may cool Fed rate hike speculation, weighing on the US Dollar.

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