US Dollar Strengthens as GDP Revised Higher, ADP Jobs Surge

US second quarter GDP was revised sharply higher, to 3.0%, while the ADP jobs count surged - continuing a run of positive surprises for the dollar.

The dollar strengthened broadly Wednesday after second-quarter economic growth was revised sharply higher and the ADP jobs count surged during August.

Second quarter gross domestic product was revised up to 3%, from the initial estimate of 2.6%, and ahead of market expectations for a minor upward revision to 2.7%.

"On second look, the US economy grew even faster than the original second quarter estimate had suggested," says Royce Mendes, an economist with CIBC. "Overall, the economy now appears to have grown at a 2.1% clip over the first half of the year, much better than what H1 had looked like only a few months ago."

The US economy added 237,000 new non-farm jobs during the month, according to the ADP employment report, far surpassing consensus economist forecast for jobs growth of 185,000.

“The goods-producing sector saw the best performance in months with solid increases in both construction and manufacturing,” says Ahu Yildirmaz, co-head of the ADP Research Institute; “Additionally, the trade industry pulled ahead to lead job gains across all industries.”

Both sterling and the euro gave up ground to the greenback in the immediate aftermath of the releases, with the pound to US dollar exchange rate dropping around 50 points to 1.2884 and the EUR/USD rate falling 25 points to 1.1908. The US dollar index added 10 points, rising to 92.70.

Wednesday’s report comes after consumer confidence rose to a near 17 year high in August, according to data released Tuesday, surpassing expectations for the third month running and easing concerns over momentum within the US economy.

“A series of strong economic data reminded traders and investors that the Fed is on course to shrinking its balance sheet and lifting rates again,” wrote Markus Allenspach, head of fixed income research at Swiss wealth manager, Julius Baer, in his morning note.

US house prices growth also accelerated by 10 basis points to 5.8% in July, according to S&P Case Shiller data released yesterday, as healthy demand collided with a tightening supply of homes on the market.

Collectively, the data appear to have called a halt to the rout that began across US dollar currency pairs, but opinions are mixed over how long this can continue for.

The dollar index rose from 91.75 to a high of 92.48 between Tuesday afternoon and Wednesday morning, while pound to US dollar exchange rate also weakened notably, falling close to 50 points over a 24 hour period to trade around the 1.2914 level.

The euro to US dollar exchange rate also pulled back from its recent high, after topping 1.2060 Tuesday, it traded down at 1.1944 Wednesday morning.

However, others have expressed scepticism over the merits of owning the US currency.

“The dollar has rebounded slightly from Tuesday’s sell-off, but there remains little to dissuade investors from positioning in stronger activity/yield stories elsewhere in the world,” says Chris Turner, head of foreign exchange strategy at ING Group.