Market Data 
- US Dollar DXY trimmed losses after robust Q2 GDP figures
- US economy appears to remain resilient but dovish bets on the Fed remain steady.
- In the meantime, the Fed maintains a data-dependent stance and refrains from rushing into immediate cuts.
On Thursday, the US Dollar as presented by the DXY, experienced a mild surge after a stronger-than-expected Q2 Gross Domestic Product (GDP) report, balancing out previous losses and finding stability at 104.30. Despite this, the chances of a rate cut by the Federal Reserve (Fed) in September still remain high which appears to limit the upside to the Greenback.
The economic outlook for the US shows mixed signs but signals of impending disinflation make the market confident in a September cut by the Fed. Despite the pressure, bank officials remain reluctant to hastily implement cuts and maintain a data-dependent stance.
Daily digest market movers: US Dollar clears part of its daily loss after positive US Q2 GDP data
- The US Gross Domestic Product (GDP) for the second quarter showed an expansion at an annual rate of 2.8%, according to the first estimate by the US Bureau of Economic Analysis, released on Thursday.
- This positive reading, which exceeded the market expectation of 2%, follows a 1.4% growth reported in the first quarter.
- Other data showed that Initial Jobless Claims for the week ending July 19, reported a better-than-expected figure of 235K.
- On the negative side, June’s Durable Goods Orders saw a significant drop of 6.6%.
- The CME FedWatch Tool continues to suggest a probable rate cut in September.
DXY Technical outlook: Bearish signs linger despite strong support around the 200-day SMA
Despite the potential headwinds, the DXY index oscillates around the critical 200-day Simple Moving Average (SMA) line, which provides significant support. In the meantime, bearish signals persist as, both the Relative Strength Index (RSI) and Moving Average Convergence Divergence (MACD) remain within the negative territory. The completed bearish crossover between the 20 and 100-day SMA on Wednesday provided an additional sell signal to the markets.
Key support levels are identified at 104.30 (200-day SMA) and 104.00 while resistance is expected around 104.50 and 105.00.
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.
