The U.S. dollar came under pressure early last night as geopolitical tensions are back in the headlines. In an interview with Reuters, President Trump said it was possible that there will be a “major, major conflict” with North Korea if diplomatic solutions fail. The comment would have been out of the ordinary from past administrations as North Korean leaders believe they are defending themselves from a pending attack from the U.S. and its allies.
This morning’s economic data will is unlikely to give the greenback any reprieve. The U.S. economy expanded at its slowest pace in three year in the first quarter of the year. GDP, the value of all goods and services produced, rose 0.7% on a year over year, failing to meet expectations of 1.0% growth. The data shows a noticeable dip from the 2.1% expansion in the 4th quarter of 2016. A breakdown of the number shows that consumer spending, the biggest part of the economy, rose 0.3% representing the worst performance since 2009.
Nevertheless, the poor data may not dissuade the Federal Reserve from normalizing monetary policy. Indeed, future show a nearly 70% chance that the Fed will raise interest rates at their June meeting, up from 50% odds a week ago.
The Euro popped higher and continues to flirt with 5-month highs against the U.S. dollar as inflation in the Eurozone accelerated. Core inflation rose 1.2% in March, higher than the 1.0% forecast by economists and represents the fastest growth in almost four years. Inflation grew 0.7% the month prior. Other reports showed signs of optimism in the Eurozone. Spanish GDP showed 0.8% growth and French growth ticked 0.3% higher.
The British pound gained against the U.S. dollar despite poor economic data released in the United Kingdom. Gross domestic product rose only 0.3% in the first quarter, less than the 0.4% median estimate of economists. The number represents the slowest growth in a year.
The sterling is set for its second monthly advance versus the U.S. dollar. The bulk of the pound’s strength came after Prime Minister Theresa May announced a snap parliamentary election for June on April 18th.