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US Dollar Pops on Strong Inflation and 3% 2Q GDP

US Dollar Pops on Strong Inflation and 3% 2Q GDP

Dylan Jusino,

Talking Points:

- The Personal Consumption Expenditure Index (PCE) beat expectations at 3.3% vs 3.0% estimated; core fell in line with projections at 0.9%.

- The US economy grew by 3% according to gross domestic product; this surpasses first quarter GDP at 2.6%

- The US Dollar gets a long-awaited spike after the slump over the past fews days

- See the DailyFX Economic Calendar for upcoming economic data and for a schedule of live coverage see the DailyFX Webinar Calendar.

See our longer-term forecasts for the US Dollar, Euro, British Pound and more with the DailyFX Trading Guides

Personal Consumption Index

Consumption in the second quarter beat analysts’ estimates as the Personal Consumption Expenditure Index (PCE) came in higher over the expected figure. PCE q/q came in at 3.3% versus 2.8% in the previous quarter. However, the core PCE was less notable as it came in line with projections at 0.9%. Within the index, durable goods saw a slight dip at 0.65% q/q and nondurable goods rose slightly at 0.62% q/q.

The PCE index is a comprehensive measure of how much consumers spend each month, counting expenditures on durable goods, consumer products, and services. It is the Fed’s primary gague for inflation. The PCE figure is released in headlines as a percent change from the previous month. Volatile items like food and energy can fluctuate widely due to seasonal and non-systemic factors. In order to provide a less erratic picture of Personal Consumption, food and energy items are excluded in the PCE core report.

Gross Domestic Product

Exports came in at 3.7% which is much higher than 2.7% in the same quarter last year. However, imports also increased over last year at 1.4% for the 2Q versus 0.4% in the previous year. This leaves net exports at 2.3%. Government consumption fell, but by less than last year at -0.3% compared to -0.9%. Goods came in at 5.9% (durables at 8.9% and nondurables at 4.3%), and services at 2.1%.

Normalization Path

While the US Dollar has benefitted from this morning’s data, this doesn’t necessarily translate into a rate hike. According to CME’s FedWatch Tool, the chance of seeing another rate hike in 2017 stands at 41% at the December Federal Open Market Committee meeting. This may come as a dissappointment to markets looking for a third hike this year.

Below is a list of economic releases that has driven the US Dollar higher:

- USD ADP Employment Change (AUG): +237K versus +185K expected, from +201K (revised higher from +178K).

- USD Gross Domestic Product (Annualized) (2Q S): +3.0% versus +2.7% expected, from +2.6% previous

- USD Personal Consumption (2Q S): +3.3% versus +3.0 expected, from +2.8% previous

- USD Core Personal Consumption Expenditure (QoQ) (2Q S): +0.9% in line with expectations and previous

- USD Gross Domestic Product Price Index (2Q S): 1.0% in line with expectations and previous

See the DailyFX economic calendar for Wednesday, August 30, 2017

Chart 1: DXY Index 1-minute Chart (August 30, 2017 Intraday)

US Dollar Pops on Strong Inflation and 3% 2Q GDP

Immediately following the data, the US Dollar Index jumped to 92.87 hitting the highest level since August 25. However, a few moments after the dollar came off of that high and settled around 92.69 at the time of this article.

--- Written by Dylan Jusino, DailyFX Research

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