US Producer Price Index Declines to 11-yr Low

US Producer Price Index Declines to 11-yr Low
May 14, 2020

 

The greenback fell against the pound yesterday after the release of worse-than-anticipated producer price index data. The pound’s gain was also fueled by a series of better-than-anticipated economic data from the UK, even though none of them are on the positive side. In the past 24 hours, the GBP/USD pair has declined from a high of 1.2340 to a low of 1.2220.

The preliminary data published by the UK Office for National Statistics (ONS) indicates that the country’s economy contracted by 2% q-o-q in the first quarter of 2020, compared with no change in the earlier quarter. Economists had anticipated the economy to shrink by 2.6% in the first quarter.

It is the biggest contraction since the fourth quarter of 2008. On a y-o-y basis, the GDP shrank by 1.6% in 1Q 2020, reflecting the steepest decrease since Q4 2009, when it also declined at the same rate. Household consumption decreased by 1.7% in Q1 2020, the biggest contraction since Q4 2008, along with decreases in government consumption, fixed capital formation, and trade volumes.

On a monthly basis, the GDP contracted 5.8% in March, compared with a contraction of 0.2% in the earlier month. Analysts had anticipated the economy to contract by 7.9% in the reported month.

Construction output contracted 5.9% m-o-m in March, following a 2.1% contract in the earlier month. The reported figures missed economists forecast for a contraction of 7.1% in March. The decline was caused by a 6.2% drop in fresh work and a 5.1% fall in repair and maintenance. It was the largest monthly decline on record since the series was published for the first time in January 2010.

Construction output declined by 2.6% q-o-q in the first quarter of 2020, led by a 2.1% drop in fresh work and a 3.5% decline in repair and maintenance. Fresh orders increased by 11.8% in the first quarter of 2020, compared with the fourth quarter of 2019. The increase was mainly because of an increase in new housing and other work, which grew by 12.5% and 11.5%, respectively.

Index of Services (IoS) declined 1.9% m-o-m in the first quarter, compared with a 0.2% increase in the earlier three months. Automobiles and repair of motor vehicles contributed minus 0.41% to the IoS.

Similarly, manufacturing production fell 4.6% m-o-m in March, compared with a 0.3% increase in the earlier month and better than the 6% contraction anticipated by economists. The decline was driven by a 20.5% decline in transport equipment and 34.3% fall in motor vehicles, trailers, and semi-trailer sector. Of the 13 industries, 10 of them contracted, reflecting the overall broader weakness.

Another economic data published by the ONS indicates that goods trade deficit widened to £12.50 billion in March, from a trade deficit of £9.8 billion in the earlier month. Economists had anticipated the trade deficit to inch slightly to £10 billion.

Industrial production contracted 4.2% m-o-m in March, compared with a 0.1% decline in the earlier month. Economists had anticipated the industrial production to contract by 5.5% for the reported period. While mining and quarrying contracted by 11.5%, electricity and gas declined by 1.5%.

In the US, the Bureau of Labor Statistics reported that the producer price index fell 1.3% m-o-m in April, compared with a 0.2% decline in the earlier month. Economists had anticipated the producer price index to decrease by 0.5%. It is the largest decrease since the institution started publishing the data in 2009.

The core producer price index declined 0.3% m-o-m in April, after increasing by 0.2% in the earlier month. Economists had anticipated the core producer price index to contract by 0.1%.

The weak economic data from both the countries is expected to keep the GBP/USD pair range-bound in the short-term.

Technically, the price chart indicates that the GBP/USD pair is facing resistance at 1.2470. The next major support is anticipated only near 1.1875. Additionally, the currency pair is also trading below its 50-day moving average. The stochastic oscillator is also in the bearish zone. Therefore, we are anticipating the GBP/USD pair to remain bearish in the days ahead.

USD - technical analysis - 14th May 2020

Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.

Richard W

Richard W

Richard is the guy who know everything there is about the financial industry, working in a top firm for over 15 years, he will give the lowdown on some of the biggest companies in the world


Related Articles

IMF, Goldman Sachs Paints Rosy Picture Of China Economy

  The Chinese yuan is losing ground against some of its major competitors midweek. The weakness is surprising due to

Tomorrow’s FOMC Meeting Will Move The US Dollar

  Here we are, Just one day before the big FOMC (Federal Reserve of the United States) meeting! As of

Yen Propelled By Strong Core Machinery Orders Data

  The Japanese yen continued to strengthen against the greenback as investors’ risk appetite is waning due to declining expectations