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  • U.S. GDP expanded at a 2.1% annualised pace in Q2, which exceeded the estimates of 1.8%.
  • U.S. 2-year treasury yields initially rose from 1.85% to 1.88%.
  • The Dollar Index climbed 0.2% higher to the 98 handle.

Markets on Friday concentrated on the U.S. Gross Domestic Product, (GDP), which beat expectations and supported the Greenback higher – Consequently, the DXY jumped to the 98 handle and closed up 0.2% on the day.

“U.S. GDP expanded at a 2.1% annualised pace in Q2, which exceeded the estimates of 1.8%. “The consumer and government spending propelled the economy in Q2; household consumption grew 4.3%, their best showing since late 2017 while government spending grew 5%, its fastest pace since mid-2009. That offset declines for business investment – likely hit by global-growth weakness and trade uncertainties – and weakness in residential investment, net trade and inventories,” analysts at Westpac explained.  

U.S. 2-year treasury yields initially rose from 1.85% to 1.88% following the data and 10-year yields moved between 2.06% and 2.10% while markets price in 28bp of easing at the Federal Reserve this week. However, stock markets might have been mistaken to think that they are expecting a 50 basis point cut considering the record closing highs in the S&P 500 and Nasdaq. Instead, the Federal Reserve will need to tread carefully considering the strength of the consumer.

Meanwhile, GBP remained on the backfoot and printed a low of 1.2376 as Brexit continues to weigh on the Pound’s outlook and the Dollar rallied 0.2%. The EUR dropped from 1.1145 to 1.1115 on dovish ECB expectations. USD/JPY clung to a 20 pip range between 108.60 and 108.80 as traders await the Federal Reserve outcome. AUD/USD dropped from 0.6950 to 0.6903  for a one-month low. and the Kiwi followed suit, dropping from 0.6660 to 0.6626.  

Key notes from Wall Street

  • The U.S. benchmarks on Friday ended higher, fresh records for S&P and Nasdaq

Key events for the week ahead

It a big week for markets this week: US (31 July) – FOMC Rate Decision. Top-Tier US data (1, 2 Aug) – ISM Manufacturing (Jul) and Nonfarm Payrolls (Jul). Canada (31 Jul) – Industry-level GDP (May). UK (1 Aug) – Bank of England Rate Decision. Eurozone (31 Jul) July Inflation, HICP (y/y), Core CPI (y/y). Europe (30-31 Jul) Q2 GDP, Sweden (q/q), Eurozone (q/q). Australia (31 Jul) Q2 CPI Headline (q/q, y/y), Trimmed (q/q, y/y). (2 Aug), Retail Sales (Jun/Q2), Retail Sales (m/m), Real Retail (Q2, q/q). China (31 Jul, 1 Aug), PMIs (Jul), Official Caixin.

Trade talks:

“Negotiators for the U.S. and China will face off in Shanghai this coming week in yet another attempt to piece together a trade accord, amid considerably lowered expectations for the kind of sweeping deal that appeared within reach this spring. Modest wins might be obtainable, however.

People close to the talks say a major breakthrough is unlikely on points that led to negotiations breaking down in early May. That includes the U.S. insistence that China commit to legal changes to protect intellectual property and abandon state…” – Wall Street Journal.