Weak U.S. GDP? No problem!
The dollar shrugged off a lower than expected growth figure for the first quarter of the year and still managed to pop higher against its peers.
What’s up with that?
We’re taking a closer look at their reactions:
Headlines:
- German GfK consumer climate index for April: -24.2 (-25.9 expected, -27.3 previous)
- U.K. CB realized sales for April: -44 (-2 expected, +2 previous)
- U.S. advanced GDP for Q1 2024: 1.6% q/q (2.5% expected, 3.4% previous)
- U.S. advanced GDP price index for Q2 2024: 3.1% q/q (3.0% expected, 1.6% previous)
- U.S. initial jobless claims: 207K (214K expected, 212K previous)
- U.S. preliminary wholesale inventories for March: -0.4% m/m (+0.2% expected, +0.4% previous)
- U.S. pending home sales for March: 3.4% m/m (0.3% expected, 1.6% previous)
- U.K. GfK consumer confidence index for April: -19 (-20 expected, -21 previous)
- Tokyo core CPI for April: 1.6% y/y (2.2% expected, 2.4% previous)
Broad Market Price Action:
Dollar Index, Gold, S&P 500, Oil, U.S. 10-yr Yield, Bitcoin Overlay Chart by TradingView
Major asset classes had a relatively lackluster Asian trading session on Thursday, with the exception of bitcoin, as market players were likely warming up ahead of the highly-anticipated advanced U.S. GDP.
Gold dipped briefly below the key $2,300 area but eventually pulled higher around the London trading session while the dollar had a slight bearish tilt.
The headline U.S. GDP reading came in below estimates, as it signaled a 1.6% quarter-on-quarter expansion for Q1 2024 versus the expected 2.5% figure and earlier 3.4% growth. However, as noted in our Event Guide, investors paid closer attention to the inflation-related GDP price index.
The advanced GDP price index nearly doubled from the previous period’s 1.6% quarterly increase to 3.1% in Q1 while the core PCE price index for the same quarter landed at 3.7% versus the projected 3.4% figure, setting the bar high for the March PCE price index due Friday.
The S&P index tumbled in reaction while Treasury yields surged on stronger odds that the Fed could delay its easing plans. Meanwhile, crude oil and bitcoin also took hits on risk-off flows.
FX Market Behavior: U.S. Dollar vs. Majors
Overlay of USD vs. Major Currencies Chart by TradingView
Price action among major FX pairs diverged from the get-go, as USD/JPY was climbing steadily before accelerating its rally upon breaking past the closely-watched 155.00 barrier.
As it turned out, the lack of intervention among Japanese officials when the currency pair breached yet another solid technical barrier was enough to encourage more yen bears to come out.
Meanwhile, the franc returned most of its earlier gains and joined the rest of its peers in sliding against the dollar ahead of the U.S. GDP release, despite the lack of Swiss catalysts.
The pound, Kiwi, and Aussie had been holding on to pretty decent gains against the U.S. currency just before the growth report was printed, but these also wound up caving to dollar strength when inflation figures for the quarter blew expectations out of the water.
The rally was short-lived and profit-taking was swift, leaving the dollar to return majority of the gains and fall back to pre-GDP levels by the end of NY trading hours.
USD/JPY looked steady around the release, though, as traders were likely bracing for the Tokyo core CPI and BOJ decision due in the next trading session.
Upcoming Potential Catalysts on the Economic Calendar:
- Australia import prices q/q at 1:30 am GMT
- Australia PPI q/q at 1:30 am GMT
- BOJ monetary policy decision, Outlook Report, and press conference coming up
- SNB head Jordan’s speech at 8:00 am GMT
- U.S. core PCE price index at 1:30 pm GMT
- U.S. personal income and spending data at 1:30 pm GMT
- U.S. UoM revised consumer sentiment index at 2:00 pm GMT
Yen pairs might be in for a rollercoaster ride in the next few hours, as market participants eagerly await the BOJ monetary policy decision. After all, this particular announcement comes with the central bank’s updated growth and inflation forecasts, likely setting expectations for future policy action. Do keep an eye out for potential jawboning, too!
Later in the day, the U.S. core PCE price index is bound to shake things up in the New York session, as the Fed’s preferred inflation measure might make or break easing expectations.
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