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EUR/USD slips as strong US GDP data lifts the Dollar

  • EUR/USD eases after failing to sustain a move above 1.1800.
  • Strong US Q3 GDP and inflation data support the US Dollar.
  • Traders await US Consumer Confidence for fresh direction.

The Euro (EUR) holds steady against the US Dollar (USD) on Tuesday as traders digest a mixed slate of US economic data. At the time of writing, EUR/USD trades around 1.1773, retreating after touching an intraday high near 1.1802.

The US Bureau of Economic Analysis published the preliminary estimate of third-quarter Gross Domestic Product (GDP), which had been postponed due to the recent government shutdown. The report showed the US economy expanded at an annualized pace of 4.3% in Q3, stronger than both the previous estimate of 3.8% and the market expectation of 3.3%.

The GDP Price Index rose 3.7% in Q3, exceeding the market forecast of 2.7% and the previous reading of 2.1%.

Inflation data tied to consumer spending also remained firm in the third quarter. Core Personal Consumption Expenditures rose 2.9% in Q3, matching market expectations and accelerating from the previous 2.6% reading. Meanwhile, Personal Consumption Expenditures Prices increased 2.8%, in line with forecasts but above the prior 2.1% figure, underscoring persistent underlying price pressure in the US economy.

Elsewhere on the US data front, Durable Goods Orders pointed to softer momentum in October. Headline orders fell 2.2%, a sharper decline than the 1.5% drop expected by markets and a reversal from the prior 0.7% increase. Orders excluding defense declined 1.5%, compared with the previous 0.1% rise.

Durable Goods Orders excluding transportation rose 0.2%, falling short of the 0.3% forecast and slowing from the prior 0.7% increase.

Industrial Production slipped 0.1% MoM in October, undershooting expectations for a 0.1% increase and easing from the previous 0.1% gain.

Following the data releases, the US Dollar regained some footing. The US Dollar Index (DXY), which tracks the Greenback’s value against a basket of six major currencies, trades around 98.10, recovering modestly after dipping to an intraday low near 97.85.

Looking ahead, traders now await the release of US Consumer Confidence for December later in the American session, which will be in the spotlight given the recent downtick in sentiment indicators and could influence near-term price action in EUR/USD.

US Dollar FAQs

The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022. Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.

The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.

In extreme situations, the Federal Reserve can also print more Dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.

Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.

Author

Vishal Chaturvedi

I am a macro-focused research analyst with over four years of experience covering forex and commodities market. I enjoy breaking down complex economic trends and turning them into clear, actionable insights that help traders stay ahead of the curve.

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