Yesterday, the US GDP report for the second quarter came in stronger than expected, with growth at a solid 2.8% and core PCE slowing from 3.7% to 2.9%. This exceeded the consensus of 2.7% and implies that the June PCE deflator will likely be 0.28% MoM. ING’s FX strategist Francesco Pesole notes that this could lead to upward revisions in the previous months, contrary to the consensus of 0.2% MoM.
Despite the positive data, the reaction in the FX markets was short-lived, with only a modest dollar rally. This can be attributed to the fact that US macroeconomic data is currently not the main driver of FX markets, and there are multiple factors influencing market sentiment. Additionally, the market has already priced in expectations of Fed easing, and the latest figures did not change this outlook.
The Dollar Index (DXY) is benefiting from low volatility in the Euro and may trade on the soft side, potentially re-testing 104.0. A core PCE of 0.2% MoM could further support this trend.
Analysis and Implications:
For investors, the stronger-than-expected US GDP report indicates a resilient economy, which could impact investment decisions. The potential softness in the DXY could also have implications for currency traders, especially those trading against the dollar. It is important to monitor how market conditions evolve in response to these economic indicators, as they can provide valuable insights into future trends in the financial markets.