•             Sterling hit 2 month highs after strongest GDP reading in 2 years

•             US weekly jobless claims report better than expected

•             CAD benefits from US data, hitting its strongest level in a week

USD –The US dollar pared losses against the euro and the yen following data showing a fall in weekly jobless claims.  Even with the recent large drop in manufactured durable goods orders and weak retail sales, the jobless claims data offered signs of reassurance that the pace of the US economic recovery may be picking up.  Unemployment job claims fell 16,000 to a seasonally adjusted 339,000 in the week ending April 20th, which has been the lowest reading in 5 years. Market participants are anticipating Friday’s GDP report to show a 3% annual growth rate for Q1.  However, analysts expect the FED to maintain its monetary easing policy for some time as they acknowledge renewed economic weakness with discussions on the weak data during their policy meeting next week.

EUR – The euro remained in similar ranges as yesterday against the US dollar, despite strong jobless claims data in the US.  The European Central Bank is expected to meet next week with prospects of cutting interest rates to build momentum to help a recession-hit euro zone economy.  German Chancellor Merkel stated that with the recent poor German business sentiment data, the ECB would have to raise interest rates but remains in a difficult position because economic performance across the euro zone varies widely.  According to government forecasts just released, some European economies in the core are performing well, with Germany being the largest and being expected to grow by 0.5% this year and 1.6% next year, which could be negatively impacted, if rates were lowered.  The euro zone has slipped back into a recession and inflation has slid well below the target of 2% for the bloc as a whole, which pressures the ECB to take stronger actions.

GBP – Sterling hit its highest level in two months against the dollar and three months against the euro, as the British economy surprised markets this morning by skirting its third recession in five years by showing its strongest GDP reading since late 2011. The Office for National Statistics said Britain's gross domestic product rose 0.3 percent in the first quarter, well above forecasts for a 0.1 percent rise. The increase was driven by strong services sector growth and a bounce-back in North Sea oil and gas output. Analysts warn that the U.K. economy has an uphill battle ahead, as it has been much slower to recover from the financial crisis than other large economies. Weak demand from a recession-hit euro zone, a drag from the government's deficit-reduction measures and high inflation eating into minimal wage rises are all to blame.

JPY – The yen held to recent ranges following data on weekly capital flows from Japan's Ministry of Finance on weekly capital flows showed that Japanese investors remained net sellers of foreign bonds, unloading a net 862.6 billion yen in the week to April 20. Investors have been closely watching flows data in recent weeks for any indication that the Bank of Japan's massive stimulus has pushed Japanese investors to seek higher returns overseas. Major Japanese life insurers have expressed caution about shifting funds into foreign bonds. In coming months, investment from large Japanese investors is likely to pick up and some of that could spill over into Europe which could usher more yen weakness. Markets await a breach beyond the 100 level – opening the door for 105 by year end. 

Commodity Currencies – The Canadian dollar hit its strongest level in more than a week against the USD after U.S. data showed a fall in new jobless benefit claims, briefly tempering broader fears about tepid U.S. economic growth. With little economic data out of Canada today, markets are awaiting an announcement from the Bank of Canada which is expected to announce a replacement soon for Carney, who is leaving in June to head the Bank of England. The bank's current deputy, Tiff Macklem, is widely expected to take the helm, but analysts say there is always a chance of a surprise. Trading of the antipodean currencies is thin today as markets are closed in Australia and New Zealand due to a local holiday. A bourgeoning recovery in the copper markets will lend support to the Aussie upon its return to markets.

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