The US economy isn’t as strong as we’ve been led to believe the past several months as the final 1Q’13 GDP report showed today. Headline growth was revised lower from an annualized rate of +2.4% to +1.8%, coming in well-below the consensus forecast of +2.4% (per Bloomberg News), and below all but one estimate (which was even lower at +1.6%). Needless to say, the report was very disappointing.
As noted by the US Bureau of Economic Analysis, “The acceleration in real GDP in the first quarter primarily reflected an upturn in privateinventory investment, an acceleration in PCE, and smaller decreases in federal government spending andin exports that were partly offset by a deceleration in nonresidential fixed investment and a smallerdecrease in imports.”
Likewise, Personal Consumption was at +2.6% q/q from +3.4% q/q, underscoring the fragility of the US consumer. Certainly, given the reaction to the data in bonds and FX, one would be led to believe that investors are reconsidering the belief that the Federal Reserve may taper QE3 sooner rather than later.
USDJPY 1-minute Chart: June 26, 2013
Charts Created using Marketscope – prepared by Christopher Vecchio
Following the release, the USDJPY slid immediately from 97.70 to as low as 97.33 within minutes, but at the time this report was written, the pair had traded back to 97.54. Overall, US Treasury yields pulled back sharply, with the 10-year yield falling from 2.565% to as low as 2.506%; accordingly, the US Dollar traded lower across the board.
The US Dollar’s recent strength has been predicated on rising US yields, and we expect this relationship to be sustained over the coming weeks and months. Quantitative Strategist David Rodriguez discussed the relationship between US yields and the US Dollar yesterday.
--- Written by Christopher Vecchio, Currency Analyst
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