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US Dollar Crushed as Q2’16 GDP Disappoints Significantly

US Dollar Crushed as Q2’16 GDP Disappoints Significantly


Talking Points:

- Fed rate expectations slip back after dismal Q2'16 US GDP reading.

- USDOLLAR Index pacing for worst day since before Brexit.

-See the DailyFX Economic Calendar for next week’s US data.

Q2’16 US GDP came in at +1.2% despite expectations of +2.5%, and only slightly faster than last quarter’s GDP growth of 0.8%. Q1 GDP was revised lower to 0.8% from 1.1%. Forecasts from the Atlanta Fed’s GDPNow and New York Fed’s Nowcast also expected +1.8-2.2%. The trend over the last few years has been a slow first quarter and a strong spike in the second, but this is clearly a miss. Last year went from +0.6% GDP growth in Q1 to +3.9% in Q2.

Personal Consumption data was just below expectations at +4.2% versus expectations of +4.4% but still significantly stronger than last quarter, which was +1.6%. Inflation data was at +1.7%, meeting expectations, but below last quarter’s data which was revised up to +2.1%.

Here’s the data dragging down the US Dollar this morning:

- USD GDP Annualized (2Q A): 1.2% versus 2.5% expected, from 0.8%.

- USD Core PCE(QoQ) (2Q A): 1.7% versus 1.7% expected, from 2.1%.

- USD Personal Consumption (2Q A): 4.2% versus 4.4% expected, from 1.6%.

See the DailyFX economic calendar for Friday, July 29, 2016

Chart 1: EUR/USD 1-minute Chart: July 29, 2016 Intraday

In an immediate, and somewhat muted, response to the data, the US Dollar fell against the Euro, as the EUR/USD rose to $1.1139 from $1.1105, and as high as $1.1143 at the time this report was written. Keep in mind that Euro-area stress tests will be coming out later today, so volatility may continue within this pair. With FX volatility edging higher again, it’s the right time to review risk management principles to protect your capital.

--- Written by Christopher Vecchio, Currency Strategist and Omar Habib, DailyFX Research

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