Forex Fundamental

EUR

'There will be no relaxing of the austerity drive because we believe in this policy' - Spanish government

Spain's government will unveil new measures later aimed at reviving the economy, a day after the unemployment rate soared to a new high, raising concerns that the economy is far away from recovery. The nation's Prime Minister Mariano Rajoy is going to present a package of reforms and more austerity measures, which will be implemented by 2015 to cut its public deficit and to turn around the economy in time to win re-election. Measures will be mostly aimed at the reduction of unemployment benefits, constantly growing energy tariff deficit, and will make permanent the temporary tax hikes, which occurred in 2011 and 2012. However, Spaniards are hoping the government will heed their calls for mercy and will review its strategy. On Thursday, data showed that nation's jobless rate shot up to a record 27.2%, up from 26.0% in the previous quarter, with more than 6 million Spaniards being out of work.

'There will be no relaxing of the austerity drive because we believe in this policy. Having said that, with all Europe in recession, it would be absurd not to adjust the deficit-cutting path,' a government source said on condition of anonymity on Thursday.

'The plan will be a specific, comprehensive and credible set of structural reforms rather than spending cuts for the sake of spending cuts,' the source said.

USD

'We saw some good resilience from the consumer, particularly given all the headwinds' - Michael Feroli, chief U.S. economist at JPMorgan Chase & Co.

The U.S. economic growth regained speed in the first quarter, however, the pace of growth is slower that was estimated, as a drop in defence outlays undercut the biggest increase in consumer spending in two years. The Commerce Department said Friday that the nation's gross domestic product rose at a 2.5% annual rate in the first quarter of this year, below 3% estimated by analysts. Partially, the acceleration in activity was boosted by farmers' activity; however, removing inventories, the growth rate stood at a tepid 1.5%. Recent data signal that even despite the acceleration, recent employment and retail sales data suggests spending is slowing. Moreover, recent budget cuts and fall in government spending weighed on the growth rate.

'We saw some good resilience from the consumer, particularly given all the headwinds,' said Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. in New York. 'The weakness in government spending is an issue. It's going to be tough to repeat the first-quarter performance this quarter.'

'It wasn't the bang-up start to the year we had hoped for, and the signals from March suggested that we will only decelerate from here,' said Avery Shenfeld, chief economist at CIBC World Markets Economics in Toronto.

GBP

'This buys him (Mr. Osborne) some time but, politically, this debate will go on and on and will only make things better for a week or so' -Stephen Driver, a professor of politics at Roehampton University

Growth figures published on Thursday provides relief for Osborne and Cameron a week after Fitch Ratings became the second major international agency to strip it of the U.K. top-notch credit rating. Britain's economy expanded 0.3% in the first quarter of this year and this data cannot be understated. Even though, the growth rate is still 2.7% smaller than its pre-recession peak, the first quarter data could herald a domestic revival. Latest data may finally give a reason for manufacturers to believe the Chancellor, when he said the economy is healing. In the meantime, even one quarter of respectable growth could change perceptions and restore confidence, proving that Osborne's stimulus programme and record-low interest rates are working.

'I can't promise the road ahead will always be smooth, but by continuing to confront our problems head on, Britain is recovering and we are building an economy fit for the future,' Osborne said.

'This buys him some time but, politically, this debate will go on and on and will only make things better for a week or so,' Stephen Driver, a professor of politics at Roehampton University in London, said in a telephone interview. 'Unless something goes seriously wrong, it would be a political disaster for Cameron to replace Osborne.'

JPY

'It is a good one and shows its commitment to strike its 2% inflation target' -Yuji Shimanaka, chief economist at Mitsubishi UFJ Morgan Stanley Securities

The Bank of Japan led by Haruhiko Kuroda said it doesn't expect consumer prices to reach its stated 2% inflation target within the two year period, but said they may rise to around that level by end-March 2016. The BoJ project inflation rate to stand around 1.9% in April 2015, raising its forecast from 1.4% estimated earlier. In its report Japanese central bank also said the economy would start picking up by the middle of this year due to bold measures introduced earlier, and lifted its forecast for real gross domestic product growth to 2.9% from 2.3%. In the meantime, no board member judged that additional easing is needed now, while Kuroda assured that policy adjustments would be made if necessary.

'We can expect more easing later this year if prices refuse to edge up,' Junko Nishioka, chief economist at Royal Bank of Scotland Group Plc (RBS) in Tokyo and a former BOJ official, said before the bank released its updated economic projections. 'It's imperative for the BOJ to clearly communicate its objectives to maintain expectations that prices will rise.'

'It is a good one and shows its commitment to strike its 2% inflation target,' said Yuji Shimanaka, chief economist at Mitsubishi UFJ Morgan Stanley Securities.

CHF

'Switzerland is in a good situation, there's solid domestic demand supported by the labour market' - Alessandro Bee from Sarasin

Swiss economic indicator, which was designed to predict the direction of the economy over the following 6 months, improved slightly in April, recovering after five months of declines, suggesting the economic momentum may pick up. According to the KOF Swiss Economic Institute, its economic indicator rose to 1.02 from a revised 1.00 in March, beating analysts' expectations of a 0.98 reading. Swiss economy is expected to grow 1.5% this year, even as the Franc remains highly valued and a further appreciation would have severe consequences for the economy. Earlier this month, the SNB pledged to defend its 1.20 per euro cap.

'Switzerland is in a good situation, there's solid domestic demand supported by the labour market. But from a cyclical view, Switzerland could have a hard time over the next couple of quarters as it lacks the export demand from Europe,' said Alessandro Bee from Sarasin.

'We see that the Swiss industry component is still falling which is not a big surprise when you see Euro Zone purchasing managers data are still pretty weak,' Maxime Botteron, Credit Suisse.

IMOH, Clement I.
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