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Worse-than-Expected UK GDP Boosts the Dollar Index by 11 Points

Worse-than-Expected UK GDP Boosts the Dollar Index by 11 Points

Renee Mu, Currency Analyst

Tomorrow’s top news for the Dow Jones FXCM Dollar Index will be the release of the UK GDP report. If the data falls short of forecasts, the Dollar Index may jump by some 11 points based on historical averages.

OPEN

HIGH

LOW

LAST PRICE

CHANGE %

USDOLLAR Index

10572.45

10586.56

10556.06

10565.1

-0.092578

EURUSD Curncy

1.2996

1.3034

1.2955

1.3016

0.153894

GBPUSD Curncy

1.524

1.5288

1.5227

1.5268

0.183727

USDJPY Curncy

99.48

99.76

99.19

99.55

0.070366

AUDUSD Curncy

1.0258

1.0296

1.0232

1.028

0.214467

Prices retrieved at 20:30 GMT

Tomorrow’s price action will be dominated by the UK’s Q1 Gross Domestic Product, with research showing that price movement may be significant given a disappointing outcome. Last quarter, the UK’s output contracted by 0.3 percent, on the heels of a temporary boost due to the Olympic Games. Currently, according to consensus estimates provided by Bloomberg News, first-quarter GDP is expected to rise by 0.1 percent. Traders will want to keep a close eye on the this GDP report, as reports a of negative growth would technically indicate a recession, which is defined as two consecutive quarters of falling output. However, the big question remains – how much, and in what way will the report influence short-term moves in the currency?

The following table summarizes the average 1-minute changes in the US Dollar Index following the release of UK GDP quarterly data, from between January 2011 and March 2013. There are three types of output reports: advanced, preliminary and final reports. Each type is listed accordingly and characterized as worse-than-expected, as-expected or better-than-expected. As one can see from the table below, a worse-than-expected report has historically lead to the greatest increase in the Dollar Index, significantly differing from the overall average one-minute change in two years—effectively zero. Furthermore, it appears evident that trading on positive data is difficult, as an increase in GDP data will not necessarily result in a bullish Pound.

More specifically, the Dollar Index rose by an average of 10.8 points when advanced output readings fell short of estimates. Keep in mind that a second consecutive quarter of contraction will mean that the UK has slipped into a third recession. Thus if the GDP data proves to be a disappointment, it is reasonable to anticipate a rise in the US Dollar Index larger than 10.8 points.

Ave 1-min Change for the Dow Jones FXCM Dollar Index after UK GDP (2011-2013)

Type of Report

Worse-Than-Expected

As-Expected

Better-Than-Expected

Advanced GDP

10.8

0.0

-1.3

Preliminary GDP

5.0

1.9

0.0

Final GDP

2.0

2.2

-1.0

Economic Calendar

--- Written by Renee Mu DailyFX Research

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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