US growth outlook is a key factor in the USD prospects – Commerzbank

FXStreet Insights Team FXStreet

Economists at Commerzbank analyze the US growth advantage and its implications for the US Dollar.

Only the US GDP seems to be back on a sustained growth path

The following picture of the Fed is emerging: ‘If the US economy were to weaken after all, it wouldn't matter much if inflation were a little higher or lower; the Fed would be inclined to cut the fed funds rate.’ Note: This is only one of the two channels through which US growth is relevant for USD exchange rates. The other is more direct: if US growth is significantly higher than growth in other developed economies over the medium to long term, then capital invested in the US will be more profitable than capital invested elsewhere. And then the currency needed to acquire that capital – the USD – will also be more valuable.

After the post-corona recovery phase, stagnation is the order of the day in most G7 economies. Only the US GDP seems to be back on a sustained growth path. This is nothing new. Japan, Italy and to some extent, France have been unable to keep up with the US for some time. However, the US has also been outperforming Germany and Canada for several years now, giving it a unique position among Western industrialized countries. The Dollar is also currently strong at the moment because the picture is once again emerging with great clarity from the latest real economic data. Conversely, the outlook for US growth – regardless of what is expected from the Fed, ECB, BoJ, etc. – is a key factor in the USD outlook.

Author

FXStreet Insights Team

FXStreet

The FXStreet Insights Team is a group of journalists that handpicks selected market observations published by renowned experts. The content includes notes by commercial as well as additional insights by internal and external analysts.

Markets move fast. We move first.

Orange Juice Newsletter brings you expert driven insights - not headlines. Every day on your inbox.

Editor's Picks

EUR/USD eases to near 1.1650, eyes US PCE for fresh impetus

EUR/USD turns south to test 1.1650 in European trading on Friday, facing rejection once again near seven-week highs. The pair, however, continues to draw support from persistent US Dollar selling bias, despite a cautious market mood. Traders now await the US September PCE inflation and UoM Consumer Sentiment data.

GBP/USD holds gains near 1.3350 ahead of US data

GBP/USD sticks to a positive bias near 1.3350 in the European session on Friday. Traders prefer to wait on the sidelines ahead of the key US inflation and sentiment data due later in the day. In the meantime, broad-based US Dollar weakness helps the pair stay afloat.

Gold remains below $4,250 barrier as traders await US PCE data for directional impetus

Gold gains some positive traction on Friday, though it remains confined in the weekly range. Dovish Fed expectations continue to undermine the USD and lend support to the commodity. Bulls, however, might opt to wait for the US PCE Price Index before placing aggressive bets.

UoM Consumer Sentiment Index expected to post a mild recovery in December

December’s preliminary Michigan Consumer Sentiment Index is forecast to have picked up to 52 from a three-year low of 51.0 in November. A stalled labour market and higher price pressures are likely to weigh on consumers’ confidence.

Canada Unemployment Rate expected to edge higher in November ahead of BoC rate decision

Statistics Canada will release its Labour Force Survey on Friday, and markets are bracing for a weak print. The Unemployment Rate is expected to tick higher to 7% in November, while the Employment Change is forecast to come in flat after a nice gain in October.

Pi Network Price Forecast: Bearish streak nears critical support trendline

Pi Network (PI) edges lower on Friday for the third consecutive day, approaching a local support trendline. The on-chain data suggests an increase in supply pressure as Centralized Exchanges (CEXs) experience a surge in inflows.