Forex Market Review (European Session) – Dollar flexes its muscles on GDP beat; euro headwinds on Catalan independence

Forex Market Review (European Session) – Dollar flexes its muscles on GDP beat; euro headwinds on Catalan independence

The dollar was standing broadly higher relative to most other major currencies as US quarterly GDP estimates beat expectations. However, the US currency gave up part of its gains later in the session as, according to a report by Bloomberg, US President Donald Trump is leaning towards Federal Reserve Governor Jerome Powell – a perceived dove – to lead the Federal Reserve after current Fed Chair Janet Yellen’s term expires next year. News of Catalonia declaring independence from Spain during the session spurred euro selling on behalf of forex market participants.

Advance estimates of US GDP growth during the third quarter of the year showed the world’s largest economy expanding at an annualized rate of 3.0%, surpassing estimates for growth of 2.5% and being just shy of the previous quarter’s 3.1%. It was feared that the devastating effects of hurricanes hitting the country during the third quarter would considerably hamper economic activity but a considerable rise in inventory investment, in conjunction with a narrower trade deficit, helped the US economy to expand at an encouraging-given-recent-readings rate. The dollar broadly advanced relative to other majors as the numbers went public.

The dollar index, which gauges the greenback against the currencies of major US trading partners, was up by 0.3% on the day at 1445 GMT, standing at its highest since late July. On a weekly basis, the index was up by a bit less than 1.3%, looking set to record its biggest weekly gain so far this year. Dollar/yen was 0.2% lower on the day though and below the 114 mark after previously touching 114.44, its highest in three-and-a-half months.

Third quarter preliminary estimates for the core PCE price index were released at the same time as GDP numbers. The Fed’s preferred inflation measure rose by 1.3% on an annual basis, matching expectations and at a faster pace than the respective figure for the second quarter which stood at 0.9%.

October final figures pertaining to the University of Michigan’s Consumer Sentiment index, showed the gauge standing at 100.7, up from September’s 95.1 but slightly below expectations for a reading of 100.9. The dollar was retreating as the numbers were released though that was attributed to news of President Trump’s likely Fed chief pick rather than having to do with the survey.

The euro was already on the back foot after the ECB’s perceived dovishness following the completion of its meeting on monetary policy yesterday. During afternoon trading hours, news on the Catalan parliament declaring independence from Spain after a secret vote added to views that political uncertainty is making a comeback in eurozone countries. Euro/dollar pierced though the 1.16 handle on the way down following the news to record a fresh three-month low of 1.1576. It later partially recovered to last trade 0.4% down on the day, at the 1.16 mark.

Indicative of the dollar’s strength: pound/dollar was last down 0.3%, having recorded a near three-week low of 1.3068 earlier in the day. Dollar/loonie was 0.3% up, hitting a three-and-a-half-month high of 1.2916 during today’s trading. Aussie/dollar was 0.05% lower, falling as low as 0.7622, a level not experienced since July 11.

Kiwi/dollar posted a notable rebound though, last trading 0.4% higher after earlier hitting 0.6816, a multi-month low.

In commodities, gold was 0.25% higher, trading at $1,270.20 an ounce after recording a three-week low of $1,263.35 earlier in the day. The dollar-denominated precious metal benefitted during later European session trading hours as the dollar was giving up on part of its gains. It yesterday lost 0.8% on the back of dollar strength. WTI was 1.5% higher at $53.41 a barrel and Brent crude was up by 0.9% at $59.90 per barrel. Both benchmarks traded at multi-month highs. The US Baker Hughes oil rig count is due at 1700 GMT.

Source: Trade Forex with XM.

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