US Dollar trades strong as longer-term US Treasury yields rise

The US Dollar extended Tuesday’s impressive gains, and was the best performing currency in the session.
The United States reported positive housing market data.
US Q3 GDP preliminary estimates and weekly Jobless Claims will be Thursday's highlights.
The 5- and 10-year US Treasury yields recovered, while the shorter-term 2-year rate declined.

The US Dollar (USD) measured by the US Dollar Index (DXY) continued climbing higher on Wednesday, rising above the 20-day Simple Moving Average (SMA) towards a six-day high of 106.52. US yields' recovery and positive housing market data allowed the Greenback to find demand.

The focus is on the United States' economic situation as markets await data to continue modeling their expectations on the next Federal Reserve (Fed) decisions. As for now, the strongest case is that the bank won’t deliver any additional hikes in 2023, but Gross Domestic Product (GDP) preliminary estimates from Q3 on Thursday and Personal Consumption Expenditures (PCE) figures from September on Friday may change those expectations.

Daily Digest Market Movers: US Dollar edges higher while investors await economic activity figures

The DXY index jumped towards 106.50, above the 20-day Simple Moving Average (SMA).
The US Census Bureau revealed that September New Home Sales came in higher than expected. The headline figure showed 0.759M new home sales, higher than the consensus of 0.68M, and increased in relation to its last reading of 0.676M.
The 5- and 10-year US yields rose sharply to 4.91% and 4.95%, respectively.
Focus now shifts to high-tier data to be released on Thursday and Friday. The US Q3 GDP growth is expected to have accelerated, and the PCE inflation to have decelerated in September.
According to the CME FedWatch Tool, the odds of a 25 basis points hike in December are still low, around 25%. In addition, the tool suggests that a pause in November is nearly priced in.

Technical Analysis: US Dollar Index bulls step in and conquer the 20-day SMA

Based on the daily chart, the DXY Index maintains a neutral to bullish technical perspective after buyers conquered the 20-day Simple Moving Average (SMA). With a positive slope above its midline, the Relative Strength Index (RSI) signals a bullish stance, while the Moving Average Convergence (MACD) exhibits lower red bars. Moreover, the DXY is above the 20, 100 and 200-day SMAs, suggesting that on the bigger picture, the bulls are in command over the bears.

Supports: 106.30 (20-day SMA), 106.00, 105.70.
Resistances:106.70, 107.00, 107.30.

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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