US Dollar edged higher on Wednesday, eyes on GDP revisions
|- The DXY Index recovered towards the 102.55 area, seeing 0.35% daily gains.
- Medium-tier US housing data failed to trigger a significant reaction on the USD.
- Middle East tensions led to Greenback demand.
- Fed’s Harker commented that the bank won't cut rates right away.
The US Dollar (USD) broke ground trading on an upbeat 102.55 with 0.30% daily gains. Middle East tensions drove demand for the Greenback but the Federal Reserve's (Fed) dovish stance may limit the bull’s momentum.
The Federal Reserve's stance showed a surprising dovishness in last week’s decision, indicating no rate hikes in 2024 and plans for a 75 bps of easing due to the cooling inflation levels. However, the bank’s decision expectations may remain sensitive to incoming data. The Q3 Gross Domestic Product (GDP) is due on Thursday, and on Friday, the US will release November’s Personal Consumption Expenditures (CPE) Price Index, the Fed’s preferred gauge of inflation.
Daily digest market movers: US Dollar edges higher in quiet pre-holiday session
- The National Association of Realtors (NAR) reported a modest increase in US Existing Home Sales in November by 0.8%, slightly defying expectations.
- Upcoming economic reports include the headline and core US Personal Consumption Expenditures (PCE) Price Index, which are expected to have decreased in November.
- US bond yields currently show a declining trend. Rates for the 2-year yield stand at 4.41%, the 5-year yield at 3.91%, and the 10-year yield at 3.90%.
- The CME FedWatch Tool demonstrates that markets are anticipating rate cuts in March 2024.
DXY Technical Analysis: Bearish control loosens on DXY Index
The indicators on the daily chart reflect a significant bearish control over the market; however, there are also hints of potential dwindling bearish momentum. The Relative Strength Index (RSI) is in negative territory yet is displaying a positive slope. This may suggest that selling momentum is starting to wane, and buyers may be slowly stepping in.
The Moving Average Convergence Divergence (MACD) shows flat red bars, indicating that though the selling pressure maintains its presence, it's not strengthening.
The Simple Moving Averages (SMAs) suggest that the overall course is downward, with the index perched below its 20,100 and 200-day SMAs. Despite this, the bears seem to be taking a breather after pushing the index to multi-month lows, possibly providing additional space for buyers to step in.
Support levels: 101.80,101.50, 101.30.
Resistance levels: 103.30 (20-day SMA), 103.50 (200-day SMA), 104.00.
GDP 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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