EUR/USD – US Preliminary GDP dips, German CPI next

• US GDP slips to 1.1% in the fourth quarter
• US unemployment claims fall sharply
• First Republic Bank struggling to survive
• Markets await US Core PCE Price Index, German CPI

EUR/USD is trading at 1.1021, down 0.18% on the day.

US GDP declines, jobless claims fall

Today’s US releases were a mixed bag. Preliminary GDP in the first quarter slowed to 1.1%, following a downwardly revised 2.6% gain in the fourth quarter and well short of the estimate of 2.0%. The main factors responsible for the weak figure were declines in inventories and private investment. The PCE price index jumped 4.2%, above the 3.7% estimate.

The strong deceleration in growth can be attributed to rising interest rates making their way through the economy as well as high inflation. Consumer confidence is under pressure and a decline in consumer spending, a key driver of growth, would raise the likelihood of a recession later this year.

The resilient labour market has been a linchpin for the US economy and has enabled the Fed to relentlessly raise rates in order to curb hot inflation. Unemployment claims have been rising over the past month, which has raised concerns of cracks in the labour market. Today’s release showed a sharp drop in claims, falling from 246,000 to 230,000.

Friday will be busy, which could result in stronger movement from EUR/USD. Germany releases CPI and GDP, while the US will release Core PCE Price Index, which is the Fed’s preferred inflation indicator.

Banking jitters resurface

Turmoil in the banking sector is once again in the headlines, as the First Republic Bank is again tottering and in need of a rescue plan. The banking crisis last month has likely weighed on spending and growth, with the Fed estimating that effect on the economy equals a 25-bp point hike. If the banking turmoil worsens ahead of the meeting, there will be more pressure on the Fed to take a pause in rate hikes. Market pricing continues to swing and has risen from 76% ahead of the GDP report to 87% at present.

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EUR/USD Technical

• EUR/USD is testing support at 1.1023. Below, there is support at 1.0966
• There is resistance at 1.1176 and 1.1228

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