The upward revision of Q2 GDP is helping the possible recovery of the US dollar

US GDP, US Dollar News and Analysis

• Q2 US GDP is higher, Q3 forecasts reveal potential vulnerabilities
• Q3 growth is likely to be more modest, according to the Atlanta Fed
• The US dollar index is trying to recover after a 5% drop.

Q2 US GDP is higher, Q3 forecasts reveal potential vulnerabilities

The second estimate of second-quarter GDP rose on Thursday after more data filtered through. It was initially revealed that economic growth in the second quarter rose by 2.8% in the first quarter to achieve a decent performance in the first half of the year.

The US economy has endured tight monetary policy as interest rates remain between 5.25% and 5.5% for now. However, recent labor market data raised concerns about excessive tightening, when the unemployment rate rose sharply from 4.1% in June to 4.3% in July. The FOMC minutes for the July meeting signaled a general preference for the Fed’s first rate cut in September. Addresses from key Fed speakers at this month’s Jackson Hole Economic Symposium, including Jerome Powell, added further credence to the view that September will see interest rates cut.

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The Atlanta Fed is releasing its own forecast of current quarter performance given the data it has received and is currently forecasting a more moderate Q3 growth of 2%.

Source: atlantafed.org, GDPNow forecast, prepared by Richard Snow

The US dollar index is trying to recover from a 5% drop.

One measure of the USD’s performance is the US dollar basket (DXY), which is trying to recoup the losses seen in July. There is a growing consensus that interest rates will not only begin to fall in September, but that the Fed could be forced to cut as much as 100 basis points before the end of the year. In addition, tight monetary policy is affecting the labor market, unemployment is rising well above the 4% mark, while success in the fight against inflation appears to be on the horizon.

The DXY found support around 100.50 and received a slight upbeat boost after Q2 GDP data came out. With markets already pricing in 100bps cuts this year, the dollar’s decline may have stalled for a while – until the next catalyst is upon us. . This may come in the form of weaker-than-expected PCE data or worsening job losses in next week’s August NFP report. The next level of support comes at psychological level 100.

The USD’s current buoyancy has been helped by the RSI emerging from oversold territory. Resistance appears at 101.90 followed by 103.00.

Daily Chart of US Dollar Basket (DXY).

Source: TradingView, prepared by Richard Snow

— Written by Richard Snow for DailyFX.com

Contact and follow Richard on Twitter: @RichardSnowFX