• US GDP grew by an impressive 3.2%, with less impressive components. 
  • A rate hike seems less likely after the release. 
  • The US Dollar dropped but has room to rise

The US economy grew by an annualized rate of 3.2% in Q1 2019 according to the initial release. The figure came out above the official expectations (2.1%), the Atlanta Fed ones (2.7%) and above the whispers (around 3%). 

The outstanding headline stands out amid government shutdown that weighed on the economy in January. It also stands out against the fact that the first quarter of the year is usually weak. This is the first time the US economy grew by more than 3% in Q1 since Q1 2013.

So why did the US Dollar drop? 4 reasons

1) Buy the rumor, sell the fact: The greenback advanced on the upbeat Durable Goods Orders published on Thursday. Expectations were already sky high and the greenback had little room to rise.

2) Weak inflation: The headline PCE, or deflator, came out at 0.6% after 1.5% beforehand. Core PCE came out at only 1.3% against 1.8% beforehand.

3) Rise in inventories: When inventories are replenished in one quarter, they tend to be depleted in the following one. Inventories contributed 0.65% to growth, and subtracting this figure makes the headline less attractive.

4) Weak consumption growth: Personal consumption rose by 1.2% annualized in Q1, against 2.5% beforehand. The US economy is centered around consumption, and this component is the leading one. 

Will the USD continue falling? Not so fast.

No hike

The largest economy in the world outperformed its peers in the past few quarters. The US economy was only marginally hit by the trade war with China. Exports are up 3.7%, and imports are down by the same scale.

The US consumer only took a short break, and the high level of employment helped avoid a downturn in the housing market. 

The Federal Reserve hit the brakes on rate rises in March, completing its dovish shift and moving to neutral. Markets went further and expected a rate cut to come sooner or later, perhaps as soon as this year. 

This seems somewhat premature now. The Fed's insistence on patience means a rate hike is not their preferred path, but cutting the FFR has no justification, despite the markets' wishes, as well as those of President Donald Trump.

What does it mean for the US Dollar?

A steady Fed can keep the US Dollar bid, but the USD is not alone. 

The European Central Bank expects and perhaps prays for a recovery in the second half of the year, The Fed does not need to wait: the US economy is growing fast already now, in what is usually a slow quarter.

And the list goes on. The BOE is paralyzed by the Brexit uncertainty. The BOJ just pledged to keep rates lower for longer. The Bank of Canada went to neutral, and the Reserve Bank of Australia is seen as cutting interest rate as soon as in the next meeting.

On this background, the USD remains "the cleanest shirt in the dirty pile" or even a just a plain clean shirt. 

All in all, there is room for optimism for USD bulls.

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.

Feed news Join Telegram

Recommended Content


Recommended Content

Editors’ Picks

EUR/USD stays in red below 1.0150 after weak US data

EUR/USD stays in red below 1.0150 after weak US data

EUR/USD has managed to stage a modest recovery in the early American session but failed to reclaim 1.0150. The data from the US showed Housing Starts fell by 9.6% in July, limiting the greenback's gains as focus shifts to Wall Street's opening bell.

EUR/USD News

GBP/USD steadies below 1.2050 as dollar rally loses steam

GBP/USD steadies below 1.2050 as dollar rally loses steam

GBP/USD trades with modest daily losses below 1.2050 in the second half of the day on Tuesday. Following the disappointing Housing Starts data from the US, the US Dollar Index retreated from multi-week highs, allowing the pair to limit its losses. 

GBP/USD News

Gold falls toward $1,770 as US yields push higher

Gold falls toward $1,770 as US yields push higher

Gold came under renewed bearish pressure in the early American session and dropped toward $1,770. The benchmark 10-year US Treasury bond yield is up nearly 2% on the day above 2.8%, forcing XAU/USD to continue to push lower.

Gold News

Three reasons why meme coins Dogecoin and Shiba Inu are hot again

Three reasons why meme coins Dogecoin and Shiba Inu are hot again

Dogecoin and Shiba Inu prices break into a rally, offering holders gains. Dogecoin offered holders 16% gains over the past week, and competitor Shiba Inu yielded 30% profits.

Read more

FXStreet Premium users exceed expectations

FXStreet Premium users exceed expectations

Tap into our 20 years Forex trading experience and get ahead of the markets. Maximize our actionable content, be part of our community, and chat with our experts. Join FXStreet Premium today!

BECOME PREMIUM

Majors

Cryptocurrencies

Signatures