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Great news from the US: the economy grew by 4% in Q2 (annualized). In addition, Q1 was revised to the upside: only 2.1% contraction. Markets had expected a growth rate of 3% (annualized), reflecting a bounce from a 2.9% contraction rate in Q1. It is important to note that  revisions to past figures  are also presented now, making the whole  reading of this figure more  complicated that usual.

The US dollar was generally stronger towards the publication, expecting a hawkish shift from the Fed. The dollar extends its gains across the board.

More data

  • Personal consumption came out better than expected: up 2.5%. This is very strong rebound.
  • Business spending and residential investment are all strongly higher.
  • The rebound in inventory was also seen.It added 1.66% to GDP growth. This is not the best type of growth as inventories could be depleted next quarter. However, this could also be seen as a  replenishing of Q1.
  • The PCE price index is also higher, and this supports a more hawkish Fed. PCE is at 2.3%, above 2% expected. Core PCE is at 2%. This is quarterly data. We will get the critical June data on Friday.
  • Q1 was revised to a contraction of 2.1%.

Currency reaction

  • EUR/USD was  battling 1.34 and it is now at 1.3375. German inflation came out below expectations earlier.
  • GBP/USD was at 1.6930 and now struggling to hold onto the 1.69 handle.
  • USD/JPY was around 102.20 and jumps towards 1.0250 – the highest in a few months
  • AUD/USD at 0.9370, and now below 0.9350.
  • NZD/USD traded at 0.8510 and is losing the 0.85 handle.
  • USD/CAD at 1.0860 and is now very  close to 1.09.

Update: After the initial surge of the US dollar, we are seeing a rebound, which is natural. The focus will gradually shift to the reaction of the FOMC, which is currently convening towards the release of their statement at 18:00 GMT.

So far, the Fed  median forecast of 2.2% growth in 2014 seems feasible. H1 average growth is just under 2%, so 2.2% is not that far.

Background

Earlier, ADP Non-Farm Payrolls came out a bit below expectations after a nice streak of  positive job figures from various data providers.

For reference, here is the preview: trading the GDP with GBP/USD.

And lest we forget, at 18:00 GMT we have the FOMC decision. A 6th taper is expected to $25 billion and the focus is on the statement.

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