US GDP +2.5%, jobless claims +331K – dollar extends

GDP growth for Q2 was was revised to a gain of 2.5% (annualized). It was expected to be revised to the upside: from 1.7% to 2.2%, so this is a nice beat. A smaller trade deficit was one of the reasons for the elevated expectations. Jobless claims are at 331K, within expectations. They were expected to stand at 330K after 337K last week (marginally revised from 336K originally reported). Continuing claims remain below 3 million. The GDP figure is certainly positive.

The US dollar was running higher against the euro and the yen: EUR/USD was holding onto support at 1.3250 and is now a bit lower. USD/JPY was around 98.25 and is now at nearly 98.50.

Analysis:  At last the US dollar is showing some strength

Currency reaction

• EUR/USD is extending its falls, with the the pair dipping as low as 1.3232. It failed to break 1.34 yesterday.
• USD/JPY rose to 98.50 before retreating. This is an extension of a big recovery from the lows: lows caused by Syrian worries.
• GBP/USD is now losing the 1.55 level. The pound already dipped to these levels yesterday.
• AUD/USD is sliding to the lows of the day, at around 0.8919. A good capex figure pushed it close to 0.90 earlier, but after failing to break higher, we see a fall now.
• USD/CAD is above 1.05 once again. Canadain figures came out better than expected: with a smaller current acount deficit.

Some details

The GDP price index was expected to remain unchanged at 0.7%, but it rose to 0.8%. While the better trade deficit was expected, part of the improvement in GDP is due to higher inventories. Building inventories now means less depleting some of them later. So, this component is not that positive.

Apart from inventories, personal consumption growth remained at 1.8%. Corporate profits rose 4.2% and sales are 1.9% higher. The Core PCE is at 1.2%, as expected. This is a figure the Fed looks at more closely.

The initial GDP release came out better than expected, but the publication included a big downwards revision to the previous quarter and huge revisions to previous data, due to a methodology change.

These publications are major events: GDP is always important and jobless claims are in the limelight due to the importance of jobs for the Fed, and the upcoming decision in September. While the “Septaper” is a close call, it seems that the Fed will begin tapering.

At least for now, the publications manage to overshadow the tensions around Syria: after a strike already seemed imminent, it seems that the West wants to make sure that a strike is made with international backing.

Further reading:  Septaper is a close call both for markets and the Fed