- Markets are digesting surprise auto tariffs from US President Donald Trump.
- The GDP’s third reading for the fourth quarter is not moving the needle.
- The US Dollar Index retraces earlier gains and turns red on Thursday.
The US Dollar Index (DXY), which tracks the performance of the US Dollar (USD) against six major currencies, is currently flat to marginally lower after paring back earlier gains at 104.40 at the time of writing on Thursday. The DXY edged higher overnight on the back of tariff comments from United States (US) President Donald Trump. An additional 25% levy on all auto imports was issued to come into effect on April 3 and countries such as Canada and the European Union were threatened with more tariffs if they look to team up in their response to the US.
On the economic data front, all eyes shifted towards the US Gross Domestic Product (GDP) release.The third reading for the fourth quarter did not bring much news to the table. Nervousness will now build towards the US Personal Consumption Expenditures (PCE) data due on Friday.
Daily digest market movers: GDP was a nonevent
- Nearly all important data for this Thursday have been released:
- US GDP third reading of the fourth quarter of 2024:
- Headline GDP Annualized came in a touch higher at 2.4% against the previous 2.3% reading.
- The headline Personal Consumption Expenditures (PCE) Prices remained stable at 2.4%.
- The core PCE component came in a touch softer at 2.6%, just below the 2.7%.
- US weekly jobless claims fell to 224,000, beating the 225,000 estimate and coming from the previous 223,000. Continuing claims came in better at 1.856 million, below the expected 1.900 million estimate and 1.892 million last week.
- US GDP third reading of the fourth quarter of 2024:
- At 15:00 GMT, the Kansas Fed Manufacturing Activity data for March is due. No forecast is available with the previous reading in contraction at -5.
- At 20:30 GMT, the President of the Federal Reserve Bank of Richmond Thomas Barkin speaks about the economy to the Home Building Association of Richmond.
- Equities are seeing US equities catch up with the drop in European equities. European equities are down near 1% while US equities are on average 0.50% lower.
- According to the CME Fedwatch Tool, the probability of interest rates remaining at the current range of 4.25%-4.50% in May’s meeting is 89.7%. For June’s meeting, the odds for borrowing costs being lower stand at 63.6%.
- The US 10-year yield trades around 4.37%, ticking up as traders are heading from US Bonds into Gold again.
US Dollar Index Technical Analysis: A dull moment again
The US Dollar Index (DXY) is not really impressed by Trump’s recent tariff talks. The extensive moves seen in the precious metal space, such as Gold, must make US Dollar bulls jealous. Expect volatility in the DXY to start picking up once the US economic data starts to portray a much clearer picture regarding US exceptionalism, stagflation, or recession scenarios.
With the weekly close above 104.00 last week, a large sprint higher towards the 105.00 round level could still occur, with the 200-day Simple Moving Average (SMA) converging at that point and reinforcing this area as a strong resistance at 104.96. Once broken through that zone, a string of pivotal levels, such as 105.53 and 105.89, could limit the upward momentum.
On the downside, the 104.00 round level is the first nearby support after a successful bounce on Tuesday. If that does not hold, the DXY risks falling back into that March range between 104.00 and 103.00. Once the lower end at 103.00 gives way, watch out for 101.90 on the downside.
US Dollar Index: Daily Chart
GDP FAQs
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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