Forex Today: US second-quarter GDP report set to ramp up market volatility
|Here is what you need to know on Thursday, July 25:
Market participants gear up for a volatile American session that will feature the United States' first estimate of the second-quarter Gross Domestic Product (GDP) growth. The US economic docket will also feature weekly Initial Jobless Claims, Durable Goods Orders and Pending Home Sales data for June.
During the Asian trading hours, the People’s Bank of China (PBOC), China's central bank, announced that it lowered the one-year Medium-term Lending Facility (MLF) rate from 2.50% to 2.30%. This unexpected decision seems to be causing investors to adopt a cautious stance. At the time of press, the Shanghai Composite Index was down 0.5% on the day and Hong Kong's Hang Seng Index was losing 1.7%. This announcement also seems to be weighing heavily on AUD/USD and NZD/USD pairs, which were last seen 0.55% and 0.3%, respectively.
Concerns over the Chinese economic outlook seem to be hurting Gold prices as well. After rising above $2,430 on Wednesday, XAU/USD made a sharp U-turn and closed the day in negative territory slightly below $2,400. Gold remains under bearish pressure early Thursday and loses nearly 1% on the day at around $2,375 in the early European morning.
US Dollar PRICE This week
The table below shows the percentage change of US Dollar (USD) against listed major currencies this week. US Dollar was the weakest against the Japanese Yen.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.46% | 0.21% | -2.89% | 0.81% | 2.20% | 1.73% | -0.52% | |
| EUR | -0.46% | -0.25% | -3.34% | 0.32% | 1.77% | 1.20% | -1.04% | |
| GBP | -0.21% | 0.25% | -3.21% | 0.55% | 2.02% | 1.45% | -0.81% | |
| JPY | 2.89% | 3.34% | 3.21% | 3.85% | 5.31% | 4.71% | 2.37% | |
| CAD | -0.81% | -0.32% | -0.55% | -3.85% | 1.47% | 0.91% | -1.34% | |
| AUD | -2.20% | -1.77% | -2.02% | -5.31% | -1.47% | -0.55% | -2.78% | |
| NZD | -1.73% | -1.20% | -1.45% | -4.71% | -0.91% | 0.55% | -2.19% | |
| CHF | 0.52% | 1.04% | 0.81% | -2.37% | 1.34% | 2.78% | 2.19% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the US Dollar from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent USD (base)/JPY (quote).
The US economy is forecast to grow at an annual rate of 2% in the second quarter, following the 1.4% expansion recorded in the first quarter. The GDP report will also include key figures, such as the quarterly core Personal Consumption Expenditures (PCE) Price Index and the GDP Price Index. The US Dollar (USD) Index fluctuates in a narrow channel below 104.50 on Thursday after posting small losses on Wednesday. Meanwhile, US stock index futures trade little changed and the 10-year US yield loses more than 0.7% on the day at 4.25%.
Following Tuesday's sharp decline, EUR/USD failed to stage a rebound on Wednesday and ended the day modestly lower. At the beginning of the European session, the pair trades below 1.0850. The European Central Bank will release M3 Money Supply and Private Loans data for June later in the session.
GBP/USD closed the day virtually unchanged on Wednesday after failing to stabilize above 1.2900. The pair stays on the back foot on Thursday and was last seen trading in the red near 1.2880.
USD/JPY extend its downtrend early Thursday and trades at its weakest level since early May below 153.00. The Japanese Yen seems to be capitalizing on safe-haven flows and benefiting from growing expectations for further policy tightening by the Bank of Japan. The Japanese Cabinet Office said in its monthly report on Thursday that the government maintained its economic assessment in July but warned of a gloomy outlook.
GDP FAQs
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.
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.
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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