US Dollar Rally Pauses as 3Q GDP Report Tops Market Forecast

US DOLLAR DIPS IN RESPONSE TO 3Q GDP REPORT

• US Dollar dipped modestly lower immediately following the latest GDP report
• 3Q-2020 US GDP posted a 33.1% growth rate roughly in line with forecast
• USD price action looks driven more broadly by recent market volatility

Third quarter GDP data out of the United States was just released and topped market forecast. The US Dollar Index (DXY) had a slightly negative reaction to the better-than-expected GDP report, which shows the American economy shrinking by -2.9% year-over-year.

3Q-2020 US GDP REPORT POSTS RECORD 33% GROWTH RATE FOLLOWING HISTORIC COLLAPSE AMID CORONAVIRUS PANDEMIC

Also detailed on the real-time DailyFX Economic Calendar, quarterly US GDP growth crossed the wires at an annualized rate of 33.1% for 3Q-2020, which marks the fastest increase on record. However, this figure was largely expected in light of the median economist forecast, and the reading looks less impressive when considering it follows the GDP collapse reported earlier this year.

US DOLLAR INDEX PRICE CHART: (5-MINUTE TIME FRAME)

Chart by @RichDvorakFX created using TradingView

US Dollar bears steered the Greenback 0.1% lower immediately following the data release as USD price action weakened marginally across major currency pairs. Yet, the move seems relatively overshadowed by other systemic risk factors like stimulus negotiations floundering, election uncertainty mounting, and coronavirus concerns resurfacing. Alas, the US Dollar Index still trades 0.34% higher intraday at the time of writing.

US GDP GROWTH RATE SLOWING SHARPLY INTO YEAR-END

Looking ahead, US Dollar outlook could mirror GDP growth expectations for 4Q-2020. A boost to GDP growth forecasts could hinge predominantly on consumer sentiment staying upbeat amid the coronavirus pandemic, as well as prospects for a big fiscal stimulus deal in the near future. Deeper declines in GDP growth projections around the world might propel the US Dollar higher considering the Greenback is postured as a top safe-haven currency that tends to strengthen during episodes of risk aversion.

It is also important to note that the market reaction to latest GDP data likely saw a relatively muted response seeing that the economic report is backward-looking. Furthermore, despite the often high-impact nature of GDP, recent US Dollar volatility looks driven by other systemic risk factors like stimulus negotiations floundering, election uncertainty mounting, and coronavirus concerns resurfacing.

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-- Written by Rich Dvorak, Analyst for DailyFX.com

Connect with @RichDvorakFX on Twitter for real-time market insight