US Dollar sees red on quiet Monday, GDP and PCE data coming up

Data on US income, spending, consumer confidence, and Q1 GDP will shape the index’s trajectory this week.
Fed's Beige Book report on Wednesday is anticipated to suggest a balanced economic backdrop.
Investors anticipate less than 80% odds of November rate cut and 50% chance of cut in September.

The US Dollar Index (DXY) is seeing some losses on Monday as US markets remain closed for the Memorial Day break. Market participants anticipate Thursday's Gross Domestic Product (GDP) and Personal Consumption Expenditures (PCE) data in hope of additional insights into the Federal Reserve's (Fed) stance and the economy's health. The Beige Book report on Wednesday will also be eagerly anticipated.

The US economy, backed by robust data, allows the Fed to maintain its hawkish stance, which cushions the US Dollar. Despite some signs of labor market softening and dampened consumer spending, inflation remains high, which justifies Fed officials’ continued talk of patience.

Daily digest market movers: DXY is mildly down ahead of key data this week, eyes on Fed officials

Officials from the Fed, including Mester, Bowman, Kashkari, Cook and Daly, are expected to continue advocating for a cautious approach in their scheduled speeches throughout the week. Markets continue to adjust their expectations, odds of September cut stand around 50%.
April’s Personal Consumption Expenditure (PCE) report is expected on Friday. Projections remain at 2.7% YoY for headline inflation, 2.8% for core.
Q1 GDP is expected to be revised to 1.3% on Thursday.
Outcome of high-tier data will continue modeling expectations on easing cycle, dictating pace of USD.

DXY technical analysis: Greenback witnesses selling pressure, while bulls struggle

The daily chart indicators display escalating bearish momentum in the DXY. The Relative Strength Index (RSI) is on a negative slope and remains in negative territory, suggesting that selling pressure prevails. This is further confirmed by the flat red bars of the Moving Average Convergence Divergence (MACD) indicator.

In regard to Simple Moving Averages (SMAs), the DXY is operating beneath the 20-day SMA, indicating bears’ short-term efficiency. Despite this, DXY remains above the 100 and 200-day SMAs, suggesting bulls have relative strength over a more extended timeline.

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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