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Engine for US Growth Sputters in April, but PCE Core Helps US Dollar

Engine for US Growth Sputters in April, but PCE Core Helps US Dollar

2013-05-31 13:30:00
Christopher Vecchio, CFA, Senior Strategist

THE TAKEAWAY: USD Personal Income (APR) > 0.0% versus +0.1% expected, from +0.3% (revised higher from +0.2%) (m/m) > USD Personal Spending (APR) > -0.2% versus 0.0% expected, from +0.1% (revised lower from +0.2%) (m/m) > PCE Core (APR) > +1.1% versus +1.0% expected, from +1.2% (revised higher from +1.1%) (y/y) > USDOLLAR BULLISH

Despite a near-10% decline in Gasoline prices during April (as measured by the RBOB Generic 1st Gasoline contract), US consumers were unwilling, or unable, to boost consumption over the same period, leading to the first decline in spending since May 2012, and only the second decline in spending from the prior month since June 2011.

Of the three prints due out at 08:30 EDT/12:30 GMT, the Personal Spending (APR) figure was the most disappointing, given the fact that consumption is the engine of the US economy, accounting for just over 70% of the headline GDP figure. Spending contracted by -0.2% m/m from March, while Personal Income (APR) was relatively unchanged, down by -0.004% officially.

In isolation, these figures might have provoked broad US Dollar weakness, but a slight bump in the PCE Core (APR) reading – the Federal Reserve’s preferred gauge of inflation pressures – has insulated the buck from further declines. Revisions in prior readings shows that inflation pressures have been slightly higher than previously expected, reducing if only somewhat the fear of a deflationary environment coming to fruition – for now.

USDJPY 1-minute Chart (Ticker: USDOLLAR) Chart: May 31, 2013

Engine_for_US_Growth_Sputters_in_April_but_PCE_Core_Helps_US_Dollar_body_x0000_i1027.png, Engine for US Growth Sputters in April, but PCE Core Helps US Dollar

Charts Created using Marketscopeprepared by Christopher Vecchio

Following the release, the knee-jerk reaction to the data provoked weakness across all USD-based pairs, but with the soft figures very much priced in, and a litany of non-US data (specifically, Asia and Europe) showing that conditions outside of the world’s largest economy are generally weak, the US Dollar’s declines were insulated. Or, when compared to say, the Japanese inflation figures overnight, the US’ slight upwards price pressure seems enviable.

Regardless, the USDJPY initially dropped from ¥100.45 ahead of the release to as low as 100.21 in the minutes after, before rallying back up to as high as 100.59. At the time this report was written, the USDJPY remained near its post-print highs, at 100.52. With another key US data print due out shortly after the US cash equity open, further volatility is expected.

--- Written by Christopher Vecchio, Currency Analyst

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