Strong US economic data is double-edged sword for the Dollar – Commerzbank

Economists at Commerzbank analyze Greenback’s outlook after the US GDP data for Q2 provided some strong support for the USD last week.

Further tightening would reduce the possibility of a soft landing for the US economy

Strong economic data constitute a double-edged sword for the Dollar. On the one hand, the prospect of a soft landing strengthens the USD outlook, above all in view of a significantly weaker growth environment in the Eurozone. 

On the other hand, excessively strong economic data could also fuel the concerns of the hawks on the FOMC that the Fed has not yet done enough to sustainably cool the economy and ensure a return of inflation to target. 

Further rate hikes could of course be seen to be initially USD-positive, but further tightening would also reduce the possibility of a soft landing for the US economy, thus invalidating the reason for the recent USD recovery.