Fed Tapers, GDP Slumps, Sterling Jumps

April was supposed to be the month where questions about the weather were put to bed, instead the US economy was worse than expected and for reasons that could persist. First quarter GDP sank the US dollar despite Fed reassurances. The economic announcements continue in China with the official PMI on tap.

Wednesday was jammed full of news and events but the Q1 GDP report stole the show with meagre growth at just 0.1% compared to 1.2% expected. For many, weather excuses are growing thin as the weakness was driven by soft exports and business investment, two categories that shouldn't be sensitive. Meanwhile, one area of strength came from the snowed-in consumer.

Still, there are signs of a thaw. The ADP jobs report rose 220K versus 210K expected and the Chicago PMI jumped to 63.0, beating the 57.0 consensus.

After the GDP report traders began to worry the Fed would hint at a weakened economic outlook and the US dollar sold off. The main winner on that trade was the pound as it rose to 5-year high of 1.6901. USD/JPY also sunk a half cent but couldn't break 102.00.

But the Fed didn't budge and the statement was more upbeat than most analysts expected. The Fed noted a recent pickup in economic activity but overall changes in the commentary were entirely minor.

Don't discount the effect of month-end/month-beginning flows as the calendar turns. In April, the pound was the top performer while the kiwi and US dollar lagged.

May is often a volatile month and it begins with the China PMI at 0100 GMT. It's expected to edge higher to 50.5 from 50.3 and a miss could put the Aussie back on its heels.