USD Advances After Second-Quarter GDP Growth Revised Higher

Inventory investment by American corporates was higher in the second-quarter than previously estimated, boosting GDP and stalling the Pound's advance on the greenback  

The greenback advanced a touch across the board and the Pound-to-Dollar rate stalled in noon trading Thursday after new data showed the US economy growing faster than was previously thought during the second-quarter.

Bureau of Economic Analysis data showed the economy growing at an annualised pace of 3.1% in the second quarter, up from the 3.0% earlier estimate, after American corporates were increased inventory investments by more than was baked into the earlier estimate.

“With this third estimate for the second quarter, private inventory investment increased more than previously estimated, but the general picture of economic growth remains the same,” the statistics body says.

The Pound-to-Dollar rate edged back from its intraday high of 1.3441, declining to 1.3425 immediately after the release, while the Euro-to-Dollar rate dropped 10 points to 1.1770.

The Pound-to-Dollar rate saw a strong bounce during the morning session in London after a joint press conference between Brexit secretary David Davis and EU negotiator Michel Barnier showed broad progress toward settling some of the key issues in divorce negotiations.

Separately, weekly unemployment claims rose a fraction during last week in the US, coming in slightly higher than was expected at 272,000. Although the trade deficit was shown narrowing faster than economists had forecast for the month of August. 

"The varied data releases published this morning add to the evidence that, even though the hurricanes did cause some temporary disruption, third-quarter GDP growth will still be between 2.5% and 3.0% annualised," says Paul Ashworth, chief North American economist at Capital Economics. 

Thursday's numbers come closely on the heels of the Trump administration having released plans for America's largest tax cut in more than three decades which, after boosting the Dollar in the first instance, had done little to help the greenback extend an early recovery. 

"Third time a charm for GDP estimates across the Atlantic this afternoon will have Mr Trump’s fans rejoicing after three consecutive monthly estimates culminating at 3.1%," says Alex Lydall, head of dealing at foreign exchange firm Foenix Partners. "With investors still grappling with news that Mr Carney has changed his tune on rates, markets will now have more than one eye focused on Yellen and her supposed hike in December."

Janet Yellen and her fellow Federal Reserve policymakers indicated in their September 20 statement that the Fed will continue to push ahead with its plans to raise interest rates and normalise US monetary policy. Yellen was seen underlining that plan earlier this week in a speech on monetary policy, where she said being too slow to raise rates would be imprudent of the Federal Reserve.