US Dollar Brushes Aside big GDP Data Miss
The US Dollar continues to trade with a soft tone after the release of US Q1 GDP data despite results showing a much deeper slowdown than analysts had predicted.
GDP rose by an annualised rate of only 0.7% in Q1 2017, compared to the 2.1% rise registered in Q4 2016, according to data from the Bureau of Economic Analysis.
This was well below analyst’s estimates for a shallower dip to 1.2%.
Compare this to the UK's GDP release earlier today that showed a rise of 2.2% on an annualised basis.
The Dollar fell marginally against a basket of currencies, with the Dollar index showing a fall from 98.74 to 98.70 in the minute after the data.
The Euro / Dollar exchange rate was seen up at 1.0906, having been as low as 1.0856 earlier in the day. The lion's share of the Euro's rally did however come following the release of stronger-than-forecast Eurozone inflation data.
The Pound / Dollar exchange rate maintained a decent bid and is seen at 1.2930 having been as low as 1.2887 earlier in the day.
That the weak print might be ‘overdone’ was suggested by Chris Williamson, chief economist at Market.
“US GDP growth rate slowed to 0.7% in Q1. PMI suggests this overstates weakness but the flash April PMI raises concerns over Q2,” said Williamson in reaction to the data release.
The weak Q1 GDP may also have been due to a seasonal effects too and probably explains why the Dollar gave a sanguine resonse.
"In the parlance of Trump himself the US first quarter GDP data was a HUUUUUGE disappointment, coming in at 0.7% (at the annualised rate) against the 1.3% forecast and the 2.1% seen in Q4. That’s worst quarterly reading in 3 years, providing a bit of schadenfreude for those who aren’t a fan of the thin-skinned President. However, Trump’s policies can’t/won’t have had much effect on the country’s growth just yet, perhaps explaining why the reaction to the reading was so muted," says analyst Connor Campbell at Spreadex.
Q1 GDP gained positive contributions from nonresidential fixed investment, exports, residential fixed investment, and personal consumption expenditures (PCE).
These were offset by negative contributions from private inventory investment, state and local government spending, and federal government spending.
However, imports, which are a subtraction in the calculation of GDP, increased.
The slowdown in real GDP in the first quarter reflected a deceleration in Personal Consumption Expenditure, the Federal Reserve’s preferred indicator and this could weigh on expectations for a June rate hike.
There were also downturns in private inventory investment and in state and local government spending.
