US dollar gains after GDP data backs smaller Fed cut in September

NEW YORK : The U.S. dollar rose on Thursday after data showed the world’s largest economy grew a little faster than expected in the second quarter, modestly reducing expectations for a larger 50 basis point interest rate cut next month by the Federal Reserve.
The report also added to growing expectations that the United States could avoid recession altogether, or go through just a mild one.
Following the U.S. data, the dollar rose to a one-week high against the yen to 145.495 and was last up 0.6 per cent at 145.385. The dollar/yen currency pair is the most sensitive to economic expectations because it typically moves in tandem with U.S. Treasury two-year yields.
Against the euro, the dollar gained, with the single European currency falling 0.3 per cent to $1.1084.
Thursday’s data showed gross domestic product (GDP) grew at a 3.0 per cent annualised rate in the second quarter, based on the Bureau of Economic Analysis’s second estimate. That was an upward revision from the 2.8 per cent rate reported last month, and higher than the 1.4 per cent growth pace seen in the first quarter. Economists polled by Reuters had forecast GDP would be unrevised at a 2.8 per cent pace.
In a separate report, initial jobless claims fell by 2,000 to a seasonally adjusted 231,000 for the week ended Aug. 24. Economists polled by Reuters had forecast 232,000 claims for the latest week.
The number of people receiving benefits after an initial week of aid, a proxy for hiring, increased by 13,000 to a seasonally adjusted 1.868 million during the week ending Aug. 17, the claims report showed, near the levels seen in late 2021, suggesting persistent unemployment.
“The data takes the risk of a 50 basis point cut off the table, though the labor market report next week is more important,” said Brad Bechtel, global head of FX, at Jefferies in New York. “A 25 basis point cut is pretty much assured at this point.”
U.S. rate futures have priced in a 35 per cent chance of a 50 basis point easing next month, slightly down from the 37 per cent probability seen late on Wednesday, according to LSEG calculations. Markets also priced in about 102 basis points of cuts by the end of the year.
The dollar index advanced 0.4 per cent to 101.44 following the report. On the week, it has gained 0.7 per cent, on track for its largest weekly rise since early April.
MONTH-END FLOWS
“The dollar has been better bid pretty much due to month-end flows. We’ll likely see a continuation of that,” said Jefferies’ Bechtel.
Typically as the month-end approaches, investors would square up positions so when an asset has been sold off for the month like the dollar, they would normally buy it back to balance their books or portfolios.
For the month of August, the dollar has lost 2.5 per cent of its value, on pace for its largest monthly fall since November 2023.
“The dollar index has been oversold when it was down below the 101 area. I would expect that we migrate back to the 103-104 area. But again, the labor market report will be critical for that.”
Investors now await Friday’s release of the U.S. core personal consumption expenditures (PCE) price index — the Fed’s preferred measure of inflation — which could provide further clues on the size of the rate cut at the September meeting, including the pace of the easing cycle.
In the euro zone, the euro fell to a 10-day low of $1.1059, after hitting a 13-month high on Friday at $1.1201. The euro was partly weighed down after inflation data from Germany and Spain led investors to increase their bets on the European Central Bank interest rate easing cycle. Inflation fell in six important German states in August, suggesting national inflation could decline noticeably this month, while dropping to its slowest pace in a year in Spain.
Money markets priced in 67 basis points of ECB rate cuts in 2024, from around 63 basis points before the data.
Currency              
bid
prices at
29
August​
02:40
p.m. GMT
Descripti RIC Last U.S. Pct YTD Pct High Low
on Close Change Bid Bid
Previous
Session
Dollar 101.49 101.01 0.5 per cent 0.12 per cent 101.58 100.
index 88
Euro/Doll 1.1066 1.112 -0.48 per cent 0.25 per cent $1.114 $1.1
ar 056
Dollar/Ye 145.41 144.64 0.44 per cent 3 per cent 145.39 144.
n 225
Euro/Yen 1.1066​ 160.76 0.1 per cent 3.4 per cent 161.26 160.
04
Dollar/Sw 0.8488 0.8423 0.77 per cent 0.85 per cent 0.8493 0.84
iss 01
Sterling/ 1.3163 1.3191 -0.22 per cent 3.43 per cent $1.3227 $1.1
Dollar 056​
Dollar/Ca 1.3478 1.3481 -0.01 per cent 1.69 per cent 1.3491 1.34
nadian 51
Aussie/Do 0.6793 0.6785 0.13 per cent -0.37 per cent $0.6824 $0.6
llar 781
Euro/Swis 0.9393 0.9365 0.3 per cent 1.15 per cent 0.9394 0.93
s 54
Euro/Ster 0.8406 0.8428 -0.26 per cent -3.02 per cent 0.8434 0.84
ling 03
NZ 0.6254 0.6246 0.14 per cent -1.03 per cent $0.6298 0.62
Dollar/Do 42
llar
Dollar/No 10.5127​ 10.4951 0.17 per cent 3.73 per cent 10.5353 10.4
rway 645
Euro/Norw 11.635 11.6732 -0.33 per cent 3.66 per cent 11.6971 11.6
ay 245
Dollar/Sw 10.2468 10.1832 0.62 per cent 1.79 per cent 10.265 10.1
eden 677
Euro/Swed 11.3413 11.3347 0.05 per cent 1.93 per cent 11.3603 11.3
en 109
(This story has been refiled to correct the day to Wednesday from Tuesday in paragraph 9 and to say ‘month-end,’ not ‘year-end,’ in paragraph 11)