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Richard Franulovich, head of FX strategy at Westpac, suggests that for the US economy, key data points including payrolls and JOLTS confirm there’s still plenty of sizzle to the economy which in addition to a reassessment of the Fed’s reaction function has seen markets trim the prospect of pre-emptive Fed cuts.

Key Quotes

“Last week also included some more cautionary signals. The April ISM manufacturing index fell to a 2 ½ year low, extending a weakening trend in place since August 2018, while the services ISM defied expectations, falling to twenty month lows. Reflecting that, Q1 GDP may have surprised on the upside but the economy has lost some momentum beneath the surface. Trade and inventories delivered an outsized boost in Q1 and the payback in Q2 could be material.”

“Even so, the US economy still has enough strength, and certainly more than the Eurozone.”

“US-China trade talks the obvious near term binary risk for markets to negotiate but regardless, DXY has enjoyed a low intensity grind higher all year and that looks set to continue.”