The US Q2 GDP print was noteworthy for two reasons. The good news was that the release allayed fears of weaker growth especially at the start of the year. Adding to that was the PCE deflator that signalled growing inflation pressure in Q2. The not so good news was the downward revision of the US growth data going back till 2011. These were consistent with the view that the trend speed of the US economic recovery remained frustratingly low.
So, if you think that US trend growth is lower, should you buy or sell the USD? We believe that the latest data is still supportive for the USD. Indeed, a more shallow economic recovery, plagued by low labour productivity, should see wage and cost pressures picking up more quickly as spare capacity is used up. The Fed's response to that should be earlier hikes and a gradual tightening cycle, with policy rates peaking earlier than usual. Yesterday's GDP data effectively confirmed Fed’s view on the economy and, by implication, strengthens the case for earlier lift-off, potentially as soon as September.
Today's US data could be quite important as well with market focus likely to be on the Employment Cost Index (ECI) - easily the most comprehensive measure of wages in the economy. Evidence of further ECI growth would be consistent with mounting wage pressures against the background of subdued trend economic growth and dissipating slack in the labour market. In turn, it would strengthen the case for lift-off sooner rather than later. USD could extend its gains broadly with markets also positioning ahead of the all-important NFP release next week.
'This content has been provided under specific arrangement with eFXnews.'
eFXnews is a financial news and information service. Articles and other information distributed in this service and published on this site are provided in general terms and do not take account of or address any individual user's position. To the extent that some of these articles include suggestions as to various possible investment strategies which users might consider, they do so in only general terms without reference to the personal factors which should determine any user's investment decisions to buy or sell a specific security or currency.
The service and the content of this site are provided and distributed on the basis of “AS IS” without warranties of any kind either, express or implied, including without limitations, warranties of title or implied warranties of merchantability or fitness for a particular purpose. eFXnews and its employees, officers, directors, agents, and licensors do not also warrant the accuracy, completeness or timeliness of the information in any of the articles and other information distributed in this service and included on this site, and eFXnews hereby disclaims any such express or implied warranties; and, you hereby acknowledge that use of the service and the content of this site is at you sole risk.
In no event shall eFXnews and its employees, officers, directors, agents, and licensors will be liable to you or any third party or anyone else for any decision made or action taken by you in your reliance on any strategy and/or advice included in any article and other information distributed in this service and published in this site.
Recommended Content
Editors’ Picks
AUD/USD risks a deeper drop in the short term
AUD/USD rapidly left behind Wednesday’s decent advance and resumed its downward trend on the back of the intense buying pressure in the greenback, while mixed results from the domestic labour market report failed to lend support to AUD.
EUR/USD leaves the door open to a decline to 1.0600
A decent comeback in the Greenback lured sellers back into the market, motivating EUR/USD to give away the earlier advance to weekly tops around 1.0690 and shift its attention to a potential revisit of the 1.0600 neighbourhood instead.
Gold is closely monitoring geopolitics
Gold trades in positive territory above $2,380 on Thursday. Although the benchmark 10-year US Treasury bond yield holds steady following upbeat US data, XAU/USD continues to stretch higher on growing fears over a deepening conflict in the Middle East.
Bitcoin price shows strength as IMF attests to spread and intensity of BTC transactions ahead of halving
Bitcoin (BTC) price is borderline strong and weak with the brunt of the weakness being felt by altcoins. Regarding strength, it continues to close above the $60,000 threshold for seven weeks in a row.
Is the Biden administration trying to destroy the Dollar?
Confidence in Western financial markets has already been shaken enough by the 20% devaluation of the dollar over the last few years. But now the European Commission wants to hand Ukraine $300 billion seized from Russia.