- US GDP Q1 revisions and increasing Jobless Claims affects USD negatively.
- Weekly Jobless Claims rose higher than expected.
- Markets look forward to PCE figures on Friday.
On Thursday, the US Dollar Index (DXY) experienced a retreat after a sharp recovery on Wednesday. The gains linked to the bond market surge on Wednesday are now being undone following the release of US Gross Domestic Product (GDP) revisions and soft Jobless Claims figures.
Despite some signs of a softening labor market, the likelihood of cuts in June and July remains low. However, there is heightened anticipation for the Personal Consumption Expenditure (PCE) figures due out on Friday, which have the potential to influence the next Federal Reserve (Fed) expectations.
Daily digest market movers: DXY retreats following disappointing data
- Investors are showing signs of nervousness with a disappointing GDP report due to signs of softening Consumer Spending. The headline GDP was revised to 1.3%.
- Markets eagerly anticipate PCE figures from April, which are due on Friday and could sway the Fed’s decisions.
- Unemployment data revealed an increase in Initial Jobless Claims from last week’s 216K to 219K.
- Despite the increased claims, odds of a cut for June and July remain low while standing around 50% for September.
DXY technical analysis: US Dollar struggles amid negative indicators
The DXY’s gains from Wednesday have been mostly trimmed in light of the less-than-favorable data for the US economy. The Relative Strength Index (RSI) is below the 50-level, indicating increased selling pressure and a shift in momentum. The index lost the 20-day Simple Moving Average (SMA), and the Moving Average Convergence Divergence (MACD) is showing red bars, signifying that bearish sentiment has returned.
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.