The US dollar gains after GDP data backs up the Fed's small September cut By Reuters
Written by Gertrude Chavez-Dreyfuss
The US dollar rose on Thursday after data showed the world's largest economy grew more slowly than expected in the second half of the quarter, slightly reducing expectations for a 50 basis point interest rate cut next month by the Federal Reserve.
The report also added to growing expectations that the United States could avoid a recession entirely, or just get through it.
Following the US data, the dollar rose to a one-week high against the yen to 145.495 and ended up 0.6% at 145.385. The dollar/yen currency pair is very sensitive to economic expectations because it usually moves in line with the two-year US Treasury yield.
Against the euro, the dollar gained, with the single European currency down 0.3% to $1.1084.
Thursday's data showed that gross domestic product (GDP) grew at an annual rate of 3.0% in the second quarter, based on the Bureau of Economic Analysis' second estimate. That was an upward revision from the 2.8% rate reported last month, and higher than the 1.4% growth pace seen in the first quarter. Economists polled by Reuters had predicted that GDP would not be revised at a pace of 2.8%.
In a separate report, initial jobless claims fell by 2,000 to a seasonally adjusted 231,000 in the week ended August 24. Economists polled by Reuters had forecast 232,000 claims in the previous week.
The number of people receiving benefits after the first week of aid, a proxy for employment, rose by 13,000 to a seasonally adjusted 1.868 million during the week ending August 17, the claims report showed, close to levels seen in late 2021, suggesting persistence. not working.
“The data poses a risk of a 50-point break, although the labor market report next week is very important,” said Brad Bechtel, global head of FX, at Jefferies in New York. “A cut of 25 points is pretty much guaranteed at this point.”
US futures are pricing in a 35% chance of a 50 basis point decline next month, down slightly from the 37% chance seen late Wednesday, according to LSEG data. Markets also have an estimated 102 points reduction at the end of the year.
It rose 0.4% to 101.44 following the report. For the week, it gained 0.7%, on track for its biggest weekly gain since early April.
LAST MONTH TRAVEL
“The dollar did a lot better because of the end-of-month flow. We'll probably see that continue,” Jefferies' Bechtel said.
Usually as the end of the month approaches, investors will add to their positions so that once the asset is sold at the end of the month as a dollar, they will often buy it again to balance their books or portfolios.
In the month of August, the dollar lost 2.5% of its value, the pace of its biggest monthly fall since November 2023.
“The dollar index was oversold when it was below the 101 area. I would expect us to move back to the 103-104 area. But again, the labor market report will be critical to that.”
Investors are now awaiting Friday's release of the US core personal use expenditures (PCE) price index – the Fed's preferred measure of inflation – which could provide further clues on the size of the rate cut at the September meeting, including the pace of the tapering cycle.
In eurozone, the euro fell to a 10-day low of $1.1059, after hitting a 13-month high on Friday at $1.1201. The euro was partially depreciated after inflation data from Germany and Spain led investors to increase their bets on a cycle of interest rate cuts by the European Central Bank. Inflation fell in six key German states in August, suggesting that national inflation may slow significantly this month, while it fell at the slowest pace of the year in Spain.
Money markets are pricing in 67 basis points for an ECB rate cut in 2024, up from 63 basis points before the data.
Money
bid
prices at
29
August
02:40
pm GMT
RIC Keeps US Pct YTD Pct Low
in Close Bid Exchange Bid
Previously
Session
Dollar 101.49 101.01 0.5% 0.12% 101.58 100.
index 88
Euro/Doll 1.1066 1.112 -0.48% 0.25% $1.114 $1.1
oh 056
Dollar/Ye 145.41 144.64 0.44% 3% 145.39 144.
n225
Euro/Yen 1.1066 160.76 0.1% 3.4% 161.26 160.
04
Dollar/Sw 0.8488 0.8423 0.77% 0.85% 0.8493 0.84
be 01
Sterling/ 1.3163 1.3191 -0.22% 3.43% $1.3227 $1.1
cost 056
Dollar/Ca 1.3478 1.3481 -0.01% 1.69% 1.3491 1.34
episode 51
Aussie/Do 0.6793 0.6785 0.13% -0.37% $0.6824 $0.6
be 781
Euro/Swiss 0.9393 0.9365 0.3% 1.15% 0.9394 0.93
s54
Euro/Ster 0.8406 0.8428 -0.26% -3.02% 0.8434 0.84
word 03
NZ 0.6254 0.6246 0.14% -1.03% $0.6298 0.62
Dollar/Dollar 42
llar
Dollar/No 10.5127 10.4951 0.17% 3.73% 10.5353 10.4
you are 645
Euro/Now 11.635 11.6732 -0.33% 3.66% 11.6971 11.6
you are 245
Dollar/Sw 10.2468 10.1832 0.62% 1.79% 10.265 10.1
when 677
Euro/Swed 11.3413 11.3347 0.05% 1.93% 11.3603 11.3
with 109
(This story has been reposted to correct the date Wednesday from Tuesday in section 9 and 'end of the month,' not 'end of the year,' in section 11)
