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US Dollar dips on GDP miss

  • The US Dollar retreats a touch after a miss on GDP
  • Small uptick in initial claims adds to dip.
  • The US Dollar Index touch lower but stil labove 106.

The US Dollar (USD) is facing a small blow this Thursday after a downbeat surprise in the Gross Domestic Product (GDP) numbers was revealed. Overall in this third reading normally no real surprises are factored in. Still, the GDP Price Index fell from 2% to 1.7%, meaning that price pressure is further easing.

A second element that has made the US Dollar a touch softer is the small uptick in initial jobless claims. Although the initial claims only rose by 2,000, the fact that there is an uptick is a small break from the earlier consecutive decline we saw past few weeks. WIth markets being so bullish on the Greenback, this could be the start for some easing together with the US government shutdown over the weekend. 

Daily digest: US Dollar some headwinds

  •  US Gross Domestic Product (GDP) annualised growth rate for the second quarter came in as expected at 2.1%, while the Price Index went lower from 2% to 1.7%. Core Personal Consumption Expenditures has been seen growing at 3.7%. 
  • The second big data point were the Jobless Claims: Initial claims headed from 201,000 to 204,000. The Continuing Claims headed from 1,662,000 to 1,670,000.
  • Around 13:00 GMT, markets expect to hear comments from Austan D. Goolsbee, the president of the Federal Reserve Bank of Chicago.
  • At 14:00 GMT, Pending Homes Sales data will come out.  The monthly reading is expected to fall 0.8%, swinging from a 0.9% increase a month earlier..
  • The Kansas City Fed Manufacturing Activity Index for September is expected to come in at 15:00 GMT. Previous was at -12.
  • A big slew of US Federal Reserve (Fed) speakers are set to speak. Fed Board Governor Lisa D. Cook will speak at around 17:00 GMT, Richmond Fed President Thomas Barkin will do so at 19:00 and, lastly, Fed Chairman Jerome Powell will speak at 20:00 GMT.
  • Equities are dropping again with Asian markets registering falls of more than 1%. European and US equities are mildly in the red. 
  • The CME Group FedWatch Tool shows that markets are pricing in an 80.4 % chance that the Federal Reserve will keep interest rates unchanged at its meeting in November. 
  • The benchmark 10-year US Treasury yield traded as high as 4.62% and takes a small step back from Monday’s peak as investors start to buy safe bonds as a shield for any possible US government shutdown. 

US Dollar Index technical analysis: off the highs

The US Dollar looks to be on a mission this week,  surprising friends and foes with yet again a firm winning streak. Another weekly gain is almost locked in, making it an eleven straight week of gains for the US Dollar. With the US Dollar Index (DXY) breaking above 106.00, traders are eyeballing 107.00 next. 

The US Dollar Index opened around 106.50, though the overheated RSI might make it difficult to maintain this level. Traders that want to hit a new 52-week high need to be aware that a lot of road needs to be covered towards 114.78. Rather look for 107.19, the high of November 30, 2022,  as the next profit target on the upside. 

On the downside, the recent resistance at 105.88 should be seen as first support. Still, it has just been broken to the upside, so it isn’t likely to be a strong barrier. Rather look for 105.12 to do the trick and keep the DXY above 105.00.


US Dollar FAQs

Fed FAQs

What does the Federal Reserve do, how does it impact the US Dollar?

Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates.
When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money.
When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.

How often does the Fed hold monetary policy meetings?

The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions.
The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.

What is Quantitative Easing (QE) and how does it impact USD?

In extreme situations, the Federal Reserve may resort to a policy named 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 during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.

What is Quantitative Tightening (QT) and how does it impact the US Dollar?

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

Author

Filip Lagaart

Filip Lagaart is a former sales/trader with over 15 years of financial markets expertise under its belt.

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