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US Dollar Rallies on Better-Than-Expected Q2 GDP

July 26, 2019 at 13:06 by Andrew Moran

A rolled dollar bill with some banknotes on the backgroundThe US dollar is rallying against a basket of currencies to close out the trading week, driven by a better-than-expected but slower than usual second-quarter economic report. The gross domestic product cooled down in the April-to-June period, but there were some bright spots in the overall report, including a surge in consumer spending.

According to the Bureau of Economic Analysis (BEA), the gross domestic product advanced a 2.1% annual clip in the second quarter, down from 3.1% in the first three months of 2019. This was higher than the market forecast of 1.9%.

Despite the disappointment behind the report, a deep dive into the numbers do paint somewhat of a positive portrait of the US economy from a consumer standpoint. In the April-to-June period, consumer spending surged 4.3%, driven by greater automobile, food, and apparel purchases. But it was not good news for businesses because fixed investment slipped 0.8%, investment dropped 11%, spending on equipment edged up just 1%, and outlays fell 1.5%.

Researchers say that if inventories would have remained neutral instead of declining $44.3 billion, then the economy would have expanded at a 3% rate in the second quarter.

Elsewhere in the report, the trade deficit impacted GDP as imports decreased and exports soared 5.2%. Federal government spending spiked 5%. Inflation, using the Personal Consumption Expenditures (PCE) index, clocked in at a 1.4% pace year over year.

Since Federal Reserve officials have made public their concern about a potential slowdown, the latest economic figures could push the Eccles Building to impose a 25-basis-point cut to interest rates from the current target range of 2.25% to 2.50%. More than half the market anticipates two rate cuts this year, according to the CME Group FedWatch tool.

Although this report does suggest that the US economy might expand more slowly in the second half of 2019, some financial institutions believe that this is just a slight bump in the road. Goldman Sachs is prognosticating that growth will return to normal in the second half.

The US Dollar Index climbed 0.16% to 97.98, posting a weekly gain of just under 1%.

The USD/CAD currency pair jumped 0.2% to 1.3190, from an opening of 1.3165, at 12:59 GMT on Friday. The EUR/USD tumbled 0.11% to 1.1135.

If you have any questions, comments, or opinions regarding the US Dollar, feel free to post them using the commentary form below.

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