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US Dollar Whipsaws Despite Stronger than Expected Q3’16 US GDP Report

US Dollar Whipsaws Despite Stronger than Expected Q3’16 US GDP Report

Christopher Vecchio, CFA, Omar Habib,

Talking Points:

- US Gross Domestic Product for the third quarter beat expectations.

- US Personal Consumption fell below expectations but remained strong.

- EUR/USD whipsaws but largely unchanged on the news – as anticipated per this morning’s GDP preview.

US Q3 GDP came in at +2.9% annualized, exceeding expectations of +2.6%, and rebounding sharply from the dismal growth rates of Q1 and Q2, +0.8% and 1.4%, respectively. The headline print is considered a beat in several regards, with the Atlanta Fed’s GDPNow growth forecast at +2.1% and the New York Fed’s Nowcast at +2.2%. In years past, we’ve typically seen Q1 weakness followed by a Q2 rebound; however, rates of growth proved frustratingly slow in 2016.

Regardless of today’s beat, there has been a notable deceleration of key growth drivers from past quarters. Personal Consumption data was below expectations at +2.1% annualized versus expectations of 2.6%, a marked decline from last quarter where PCE grew at a +4.3% rate. While Personal Consumption was the primary driver in Q2’16 US growth, Q3 was driven by a combination of PCE, Gross Private Investment and exports. Gross Private Investment rose +3.1%, compared to -7.9% in Q2, and exports jumped +10%, compared to a growth in imports of only +2.3%. However, the export net figure was likely distorted by the bankruptcy of the Hanjin Shipping Company, which resulted in slower import traffic at west coast ports (Oakland, Long Beach, Los Angeles) in recent weeks.

Here’s the data pushing around the US Dollar this morning:

- USD GDP Annualized (3Q A): +2.9% versus +2.6% expected, from +1.4% (annualized).

- USD Personal Consumption (3Q A): +2.1% versus +2.6% expected, from +4.3% (annualized).

- USD Core Personal Consumption (3Q A): +1.7% versus +1.6% expected, from +1.8% (annualized).

See the DailyFX economic calendar for Friday, October 28, 2016

Chart 1: EUR/USD 1-minute Chart (October 28, 2016 Intraday)

In an immediate, and somewhat muted, response to the data, the US Dollar whipsawed against the Euro, as the EUR/USD rose to $1.09355 from $1.09119, and then fell back to $1.09131. By the time this report was written, the pair had then turned and rose again to settle near pre-data levels around $1.09268. As noted earlier this morning, we believed that the Q3’16 US GDP report was unlikely to have a significant impact given the context in which next week’s Federal Reserve November policy meeting will take place.

Read more: False Breakouts in GBP/JPY, GBP/USD? USD Steadies Ahead of GDP

--- 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.