The US Dollar (USD) holds steady near yearly lows ahead of a very volatile day expected on Thursday. Besides a bulk data release, no less than eight US Federal Reserve (Fed) policymakers are set to speak, including Fed Chairman Jerome Powell. Comments will be watched more than ever by market participants after Bloomberg reported on Wednesday that a bond trader took out 118,000 future contracts betting on a big interest rate cut in the Fed’s next meeting in November, the largest size traded on record ever.
On the economic data front, a bulk release will unfold at 12:30 GMT. Besides the weekly Jobless Claims, the August Durable Goods Orders and the third reading of the US Gross Domestic Product (GDP) for the second quarter will be released at the same time, and volatility is bound to pick up once the data comes out.
The US Dollar Index (DXY) is either set to be thrown left and right on Thursday or could cover a lot of ground in one direction. The first scenario would play out if economic data misses expectations and does not align with all the comments from the Fed speakers. In case all data falls in line with expecctations, and Fed speakers even use recent data to build up their view or outlook, expect to see a potential nosedive or rally in the DXY.
The upper level of the September range remains at 101.90. Further up, the index could go to 103.18, with the 55-day Simple Moving Average (SMA) at 102.36 along the way. The next tranche up is very misty, with the 100-day SMA at 103.57 and the 200-day SMA at 103.76, just ahead of the big 104.00 round level.
On the downside, 100.22 (the September 18 low) is the first support, and a break could point to more weakness ahead. Should that take place, the low from July 14, 2023, at 99.58, will be the next level to look out for. If that level gives way, early levels from 2023 are coming in near 97.73.
A country’s Gross Domestic Product (GDP) measures the rate of growth of its economy over a given period of time, usually a quarter. The most reliable figures are those that compare GDP to the previous quarter e.g Q2 of 2023 vs Q1 of 2023, or to the same period in the previous year, e.g Q2 of 2023 vs Q2 of 2022. Annualized quarterly GDP figures extrapolate the growth rate of the quarter as if it were constant for the rest of the year. These can be misleading, however, if temporary shocks impact growth in one quarter but are unlikely to last all year – such as happened in the first quarter of 2020 at the outbreak of the covid pandemic, when growth plummeted.
A higher GDP result is generally positive for a nation’s currency as it reflects a growing economy, which is more likely to produce goods and services that can be exported, as well as attracting higher foreign investment. By the same token, when GDP falls it is usually negative for the currency. When an economy grows people tend to spend more, which leads to inflation. The country’s central bank then has to put up interest rates to combat the inflation with the side effect of attracting more capital inflows from global investors, thus helping the local currency appreciate.
When an economy grows and GDP is rising, people tend to spend more which leads to inflation. The country’s central bank then has to put up interest rates to combat the inflation. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold versus placing the money in a cash deposit account. Therefore, a higher GDP growth rate is usually a bearish factor for Gold price.
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