Dollar Finds Support on GDP, PCE and Jobless Claims Figures

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A batch of U.S. data printed relatively firmly on Thursday, offering support to the Dollar just days before the U.S. Federal Reserve's next policy decision.

Headlining the docket was U.S. GDP for the first quarter which came in at 1.1%, according to the BEA.

The consensus was for a reading of 2.0%, but as we reported here, a revision to U.S. retail sales announced earlier this week meant economists were obliged to lower expectations for today's print.

Given polling for the outcome would have been completed by the time of the release, the 'real' consensus estimate was set lower.

"Measured against the difficult environment, the U.S. economy has thus still held up reasonably well at the beginning of 2023," says Dr. Christoph Balz, Senior Economist at Commerzbank.

But Commerzbank expects the economy to contract slightly in the second half of the year.

"This is because the full impact of the Fed's interest rate hikes will probably not be felt until then due to the usual lags. It also fits in with this that growth in the first quarter was mainly based on very good January figures. The data for February and March were already weaker," says Balz.

The Dollar index - a measure of broader USD performance - rose a third of a per cent in the wake of the data release.

The GBP to USD exchange rate dipped by a quarter of a per cent to 1.2445, and the EUR to USD rate was down 0.35% at 1.1008.

Elsewhere, data came in above consensus with the GDP Price Index rising 4.0% in the quarter, ahead of estimates for 3.7%, and up on the Q4 reading of 3.9%.

Price pressures were also evident in the PCE pricing release of 4.2% for the first quarter, which is well ahead of the 0.5% estimate and up on the previous reading of 3.7%. Core PCE was up 4.90%, exceeding estimates for 4.7% and Q4's 4.40%.

The jobless claims number meanwhile came in below estimates (248K) at 230K, which is down on the previous week's 246K. In all, the data is robust and confirms the Federal Reserve (Fed) has the space to proceed with another interest rate hike next week.

"The U.S. Initial Jobless Claims number came in lower than expected... this indicates marginal strength in the U.S. labour market, and at the margin, reinforces the potential for one last hike before the Fed pauses," says Ryan Brandham, Head of Global Capital Markets for North America at Validus Risk Management.

Looking ahead to next week's May 03 Fed decision, what will be of consequence to the Dollar is where the Fed guides markets as to future rate hikes or rate cuts.

On the face of it, today's data would likely ensure the Fed stays alert to price pressures and it will be resistant to condoning current market pricing for rate cuts to start in the second half of the year.

Those betting on further USD weakness might come away disappointed.