US Dollar adds gains on positive data

Atlanta Fed President Bostic is cautious about rate cuts and prefers to see more data before easing.
Revised GDP growth of 3% in Q2 highlights the resilience of the US economy.
Jobless claims came in better than expected.

The US Dollar, measured by the US Dollar Index (DXY), saw further gains above 101.00 on Thursday. The 10-year US yield holds above 3.8%, supporting the Greenback. US stock index futures trade mixed following Nvidia earnings, which could impact risk appetite and the US Dollar's demand as a safe-haven currency. On the data front, Gross Domestic Product (GDP) revisions highlight US economic resilience.

The US economy remains robust, exceeding expectations. However, market sentiment appears overly optimistic, with expectations of aggressive monetary easing.

Daily digest market movers: US Dollar extends gains after GDP revisions

Atlanta Fed President Raphael Bostic, a leading FOMC hawk, expressed caution about imminent rate cuts, citing robust labor market conditions and elevated inflation.
About 100 bps of easing is anticipated by year-end and 200 basis points over the following year.
The odds of a 50-basis-point cut in September remain within the 30-35% range.
Contrary to expectations, the Bureau of Economic Analysis revised Q2 annualized real GDP growth upwards to 3% from 2.8%.
New unemployment insurance claims in the US declined slightly to 231K for the week ending August 23, marginally below market estimates.

DXY technical outlook: Index indicates potential recovery, resistance at 101.50

Indicators suggest a potential recovery for the DXY, with the Relative Strength Index (RSI) trending upward and the Moving Average Convergence Divergence (MACD) indicator printing lower red bars.

A consolidation above the 101.00 support level could trigger a rally. Key supports include 100.50, 100.30 and 100.00, while resistances are located at 101.50, 101.80 and 102.00.

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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