Forex Today: The US Dollar Rises and Falls in Relation to US GDP
On Thursday, there was something for both bulls and bears following a barrage of data in the US that was generally positive but continues to indicate a weakening economic forecast with falling inflation, causing traders to continue to bet on a dovish Federal Reserve when it meets next week, February 1.
The US Commerce Department said that GDP rose at a faster-than-expected 2.9% annual pace in the fourth quarter of last year as consumers increased their expenditure on products.
Personal Consumption Expenditures growth fell to 2.1% year on year from 2.3% in the previous quarter, while the GDP price index decelerated to 3.5%, raising the probability of a dovish Fed. More data will be released on Friday, including Core PCE, the Fed's preferred inflation gauge, which indicates that prices likely increased at a 0.3% MoM rate in December, while analysts at TD Securities say that a 0.4% increase cannot be discounted. According to them, the YoY rate likely decreased to 4.5%, implying that prices continue to decline but remain sticky at high levels.
The US Dollar index, DXY, climbed 0.246% to 102.18 from a low of 101.504, with futures pricing a 94.7% chance of a 25 basis point rise next Wednesday and the Fed's overnight rate at 4.45% by next December. This is lower than the 5.1% rate forecast by Fed policymakers for next year, based on market expectations of a rate drop. US Treasury rates increased as well, with the 10-year Treasury note yield jumping to 3.52%.
GBP/USD, which has dropped 0.1% this week, the first weekly fall since the week of December 23, provided two-way trading in the US session. The bears first cleaned out the Lonodon lows, but the price rebounded in and around the US data following a knee-jerk drop. The bears ultimately regained control around the day's highs, and the price plummeted 50 pips before rising again into the day. It was between 1.2344 and 1.2430. In a similar vein, the EUR/USD traded between 1.0850 and 1.0929.
USD/CAD fell from 1.3407 to 1.3303 and continued to decrease throughout the day as commodities performed well in a weak US dollar market. In Asia on Friday, the USD/JPY rose from 129.02 to 130.61 ahead of the Japan Consumer Price Index. Commodity markets remained buoyed by optimism about the resumption of Chinese demand and a continuously lower US dollar. WTI rose 1.1% to $81.2/bbl, maintaining its stronger tone. Gold dropped 0.8% to $1,930.8/oz. Following yesterday's volatility, Bitcoin held holding above $23,200 ahead of the US data, sliding a few hundred US dollars when the results were released before rebounding back over $23,000.