Friday, July 26, 2019

US GDP data to shape expectations for more easing from the Fed this year

  • Dollar
  • Gold
  • Yen
  • Euro
  • Pound
  • Stocks
  • Oil


The Dollar comes front and center today ahead of the US GDP report for the second quarter of 2019. The US currency had a rather volatile session yesterday when the Durable Goods data was released; economists were expecting a mixed set of figures, with headline demand predicted to show strength but reduced confidence in regards to its sub-components. Nevertheless, all the numbers printed stronger than expected, keeping the greenback supported and 10-year yields moving higher again as the there was little evidence of weakness in demand for big-ticket goods.

Today though the focus will fall on the US GDP numbers and this should shed more light on how domestic growth fares in the States. Economists expect growth to have eased to 1.8% during Q2, from 3.1% during the first quarter and this will be a significant driver for what to expect from the Fed going forward. We remain firm in our thesis that given the dovish tone coming from the US central bank, a rate cut at the end of the month is guaranteed but reports like today’s GDP reading will shape expectations on whether more rate reductions should be expected during rest of the year.

To be more specific, a number below the 1.8% mark should be enough to convince market participants that the Fed will ease policy more than once this year and would weigh down on the Dollar. Both Dollar/Yen and Dollar/Swiss pushed higher yesterday on the back of the stronger-than-expected Durable Goods data but a soft reading today will likely reverse these gains. Conversely, if the GDP report surprises to the upside - a printing between 2.0 and 2.5% should be regarded as sufficiently bullish - the greenback will look to extend its gains as the odds for more easing down the road will retreat.

Elsewhere, the ECB didn’t cut rates as expected yesterday but Mario Draghi painted a rather bearish picture in regards to the Eurozone economy’s outlook. The head of the ECB was clear in his remarks: more easing is needed and the central bank will do everything they can to support growth and push inflation towards their 2% mark. Market participants were well prepared for such a rhetoric so the Euro didn’t sell off while his comments on the low likelihood of an upcoming recession also supported the shared currency that ended the day relatively flat. Nevertheless, we retain our bearish outlook on the Euro as we expect the ECB to ease policy in September and we see little to no evidence of growth and productivity picking up in the region against a challenging geopolitical and trade backdrop.

Gold seemed ready for a breakout to the upside yesterday but the surprisingly robust US data kept the Dollar well supported and the yellow metal capped. Prices retreated to $1,415 overnight but the small magnitude of Gold’s pullback indicates that the bulls are still around. Clearly, the focus today will be on the US GDP figures and as we mentioned above, the threshold for a bullish reaction for the Dollar stands around the 1.8-2% mark. Should the Dollar see more demand in case of a positive US report, Gold will retreat further towards the $1,400 floor. Otherwise, a miss in the GDP report will see prices rallying towards $1,430 again.


  • US Gross Domestic Product - 4.30pm
  • US Core PCE - 4.30pm

All times are GMT +4.

Written by Konstantinos Anthis, Head of Research