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US Dollar Sinks as US GDP Contracts Most Since 2001

Tuesday, 25 November 2008 12:59:23 GMT  |  John Rivera, Currency Analyst

GDP in the U.S. shrank 0.5% which was more than the initial estimate of 0.3% and the most since 2001. The lower second reading demonstrates that the impact of the credit crisis has taken a bigger than expected toll on the U.S. economy which sunk the dollar.

GDP in the U.S. shrank 0.5% which was more than the initial estimate of 0.3% and the most since 2001. The lower second reading demonstrates that the impact of the credit crisis has taken a bigger than expected toll on the U.S. economy which sunk the dollar. The most concerning data point for investor’s will be the 3.7% drop in personal consumption which demonstrates that consumers have retrenched. Looking at the breakdown we see that purchases of durable goods fell 15.2% as Americans have restricted their purchases to short term needs. A 17.6% drop in residential investment also demonstrates that the housing slump is far from bottoming which will continue to provide trouble for banks that have the balance sheets filled with mortgagee backed securities.  The strong dollar has also started to take a toll on demand for U.S. goods as exports fell from 16.3% in the second quarter to 3.4%. The dollar plunged over 200 pips against the Euro on the data, as expectations that the U.S. economy will be the first to emerge from the crisis took a blow. The OECD today forecasted a 0.9% decline in growth for 2009 and the lower expectations for U.S. growth could be a weighing factor on the greenback.

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