US dollar maintains bullish trajectory despite shock contraction in US GDP

The US dollar continued to push higher yesterday, propelling the currency to new multi-year highs in spite of an abysmal US GDP print.

Meanwhile, the is mostly stable so far this morning, with GBP/EUR buoyed at €1.1884 and GBP/USD climbing to $1.2532. GBP/CAD is rangebound at C$1.5975, while GBP/AUD and GBP/NZD hold steady at AU$1.7544 and NZ$1.9228, respectively.

Centre stage today will be the publication of the Eurozone consumer price index. Will another surge in inflation help the euro to recoup some of its recent losses?

What’s been happening?

The US dollar continued to rally on Thursday, with the dollar index – which measures the US dollar against a basket of its peers – striking its highest levels in almost 20 years.

However, the ‘greenback’s gains were capped and eventually reversed following the release of the first quarter US GDP print. The preliminary figures reported a shock contraction of growth, with the US economy sinking 1.4% against forecasts for a 1.1% expansion.

The strength of the US dollar continued to exert pressure on the euro yesterday due to the strong negative correlation between the pairing.

These losses were compound by concerns over European energy security amid reports Germany no longer opposes an embargo of Russia oil.

Meanwhile the pound tumbled again on Thursday amid fresh concerns over the UK economy, following reports UK insolvencies have risen to a ten-year high.

What’s coming up?

Turning to today’s session the spotlight is likely to be on the Eurozone consumer price index.

April’s preliminary CPI figures are forecast to report another acceleration of inflation. This could help bolster expectations the European Central Bank (ECB) may begin raising interest rates over the summer and revive demand for the euro.

EUR exchange rates are also likely to be influenced by the Eurozone’s own GDP figures, with the euro far more susceptible to losses if growth in the bloc contracted at the start of the year.

For USD investors the focus today will be on the release of the latest PCE price index.

As the Federal Reserve’s preferred indicator for inflation this could help to extend the US dollar’s bullish run if prints strongly again in April.

Meanwhile, the continued absence of any notable GBP data could leave the pound exposed to further losses through the end of the week.