With Tokyo closed on Tuesday, attention was focussed on the start of a busy European session. There were expectations of a robust figure for the latest UK GDP Q1 preliminary release, the consensus at 0.9% growth in the quarter after a 0.7% gain previously. Sterling inevitably traded with a firm tone into the release with GBP/USD pushing above the 1.6840 level.
In the event, growth fell slightly short of expectations at 0.8% which triggered significant profit taking on long Sterling positions. GBP/USD dipped to test support below 1.68 as EUR/GBP tested resistance above 0.8250. Underlying sentiment was still robust and GBP/USD found solid buying support on dips.
There were generally weak Euro-zone indicators at the start of the European session with Spanish unemployment rising to 25.9% from a revised 25.7% as Italian retail sales fell in the latest month. The main focus, however, was on monetary and inflation data given the potential ECB policy implications. There was another weak ECB monetary report as money supply growth slowed to an annual 1.1% for March from 1.3% Private loans also continued the relentless contraction and fell 2.2% over the year.
The German inflation data was also watched very closely ahead of the Euro-zone release on Wednesday. There were mixed readings for the individual states and EUR/USD was able to consolidate just above the 1.3850 level after again failing to break above 1.3880.
The national data was slightly weaker than expected with a 0.2% monthly decline in prices and annual 1.3% increase. Although only fractionally below expectations of 1.4%, there was a substantial market impact as the Euro weakened sharply both against the dollar and on the crosses. EUR/USD lost support at 1.3850 and dipped to 1.3810 lows early in the New York session with renewed speculation over ECB easing even with Draghi appearing to rule out any near-term move to quantitative easing.
The US house-price data was in line with expectations while consumer confidence was slightly weaker than expected at 82.3 for April which did not provide any fresh impetus for the dollar. USD/JPY failed to sustain a move above 102.70 and edged back towards 102.50 during the US session and EUR/USD was able to find further support on approach to 1.3800. Sterling was still the stand-out performer as it regained post-GDP losses and GBP/USD pushed back to 1.6840.