US Dollar at a two-month high while Nasdaq ties up with gains and US GDP sets upbeat surprises

US Dollar stays at session's high against most other pairs, bearing news gains for a two-month performance.
US debt-ceiling talks continue with no sings of a solution while several rating agencies issuing a negative outlook for the US credit rating.
US Dollar Index consolidated above 104, next level on the upside is at 105.

The US Dollar (USD) on track to set its best two-monthly performance since January as the Greenback hits session's high against EURUSD, USDCNH, USDJPY, USDINR and several other G10 currencies at the time or writing. Comments overnight from US Treasury Secretary Janet Yellen and the FOMC Minutes confirmed what traders assumed, that the current play with the USD as safe haven is still very much the place to be. Meanwhile US debt-ceiling talks ended again unresolved but with good progress according to US House Speaker Kevin McCarthy.

The macroeconomic data for this Thursday adds to the strenght of the Greenback with US Q1 Gross Domestic Product (GDP) numbers revised higher from 1.1% to 1.3%, the Core PCE QoQ from 4.9% to 5.0%, confirm that the US economy is still in good health. Throughout the day it will be worth wild to keep an eye on 1-year US Treasury Bills (T-bills) as they have been soaring to 7% on Wednesday, with US Credit Default Swaps (CDS) back at the highs. Fed officials are set to speak with Thomas Barkin talking at 13:30 GMT at an Economic Forum and then Susan Collins at 14:30 GMT.

Daily digest: US Dollar relentlessly higher

McCarthy came out with comments at the start of the US session that negotiators have made some progress and negotiators are instructed to work 24 hours a day from now on to eke out an agreement.
US GDP numbers strong with the Annualized at 1.3% (prev. 1.1%), GDP Price Index at 4.2% (prev. 4.0%) and Core PCE at 5.0% (vs 4.9%).
Both Initial and Continuing claims dropped lower, with the intial at 229k (prev. 242k) and the continuing claims at 1,794k (prev. 1799k)
DBRS Morningstar joins the group of credit agencies that is placing a negative review of its US credit rating.
CME group is preparing for a US debt default by looking at adjusting Haircuts on US Bonds if the debt ceiling risk further rises.
US Treasury Secretary Yellen reiterated that the US government may run out of cash as of June 1st and that some obligations will be unable to be paid after that day. Some stress in financial markets currently at hand might substantially escalate further if a deal is not found.
Kevin McCarthy concluded the talks on Wednesday with no deal, but good progress.
FOMC Minutes underlined again that the Fed remains data-dependent with cuts unlikely while inflation is still unacceptably high.
Fitch issued a negative outlook for its AAAu credit rating of the United States.
US Credit Default Swaps (CDS) jumped higher for a third day in a row and are nearing the peak of last Wednesday.
US equity futures are mixed with Nvidia (NVDA) up 25% and keeping the Nasdaq in the green while the Dow Jones Industrial Index is on the back foot.
The CME Group FedWatch Tool shows that markets are pricing in a 75% chance of rate hike for July when the FOMC minutes from Wednesday confirmed the datadependancy of the Fed and their stance that inflation is still too elevated.
The benchmark 10-year US Treasury bond yield trades at 3.78% and making a new two-month high.

US Dollar Index technical analysis: DXY heading for the next big figure

The US Dollar Index (DXY) has taken out both the 55-day and the 100-day Simple Moving Averages (SMA), respectively, at 102.43 and 102.85 on the upside. The safe haven status keeps seeing bids for the DXY with 104 having been broken early on Thursday, during the European trading session. The next target becomes 105.

On the upside, 105.74 (200-day SMA) still acts as long-term price target to hit, as the next upside key level for the US Dollar Index is at 104.00 (psychological, static level), and acts as an intermediary element to cross the open space.

On the downside, 102.85 (100-day SMA) aligns as the first support level to confirm a change of trend. In the case that breaks down, watch how the DXY reacts at the 55-day SMA at 102.48 in order to assess any further downturn or upturn.

Gross Domestic Product FAQs

What is GDP and how is it recorded?

A country’s Gross Domestic Product (GDP) measures the rate of growth of its economy over a given period of time, usually a quarter. The most reliable figures are those that compare GDP to the previous quarter e.g Q2 of 2023 vs Q1 of 2023, or to the same period in the previous year, e.g Q2 of 2023 vs Q2 of 2022.
Annualized quarterly GDP figures extrapolate the growth rate of the quarter as if it were constant for the rest of the year. These can be misleading, however, if temporary shocks impact growth in one quarter but are unlikely to last all year – such as happened in the first quarter of 2020 at the outbreak of the covid pandemic, when growth plummeted.

How does GDP influence currencies?

A higher GDP result is generally positive for a nation’s currency as it reflects a growing economy, which is more likely to produce goods and services that can be exported, as well as attracting higher foreign investment. By the same token, when GDP falls it is usually negative for the currency.
When an economy grows people tend to spend more, which leads to inflation. The country’s central bank then has to put up interest rates to combat the inflation with the side effect of attracting more capital inflows from global investors, thus helping the local currency appreciate.

How does higher GDP impact the price of Gold?

When an economy grows and GDP is rising, people tend to spend more which leads to inflation. The country’s central bank then has to put up interest rates to combat the inflation. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold versus placing the money in a cash deposit account. Therefore, a higher GDP growth rate is usually a bearish factor for Gold price.

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