US Dollar drifts lower after GDP beat and tariff-driven rally
- The DXY trades near the 104.40 zone after fading earlier tariff-fueled gains on Thursday.
- Traders weigh upbeat GDP data and auto tariff news against limited market follow-through.
- Technical signals remain broadly bearish despite some conflicting momentum indicators.
The US Dollar Index (DXY), which measures the value of the US Dollar (USD) against a basket of currencies, trades marginally lower on Thursday near the 104.40 area after giving back early-session gains. The Greenback was initially boosted by a surprise auto tariff announcement from US President Donald Trump and stronger-than-expected fourth-quarter GDP data, though mixed momentum indicators are keeping traders cautious.
Daily digest market movers: US Dollar pulls back despite upbeat GDP release
- The US Gross Domestic Product for Q4 was revised to 2.4% annually, slightly beating expectations and the prior 2.3% estimate.
- The Bureau of Economic Analysis cited growth in consumer and government spending in Q4 GDP, while imports and investment declined.
- Continuing jobless claims showed a drop of 25,000 claims to 1.856 million, signaling labor market resilience.
- The four-week moving average of insured unemployment fell to 224,000, underscoring tight employment conditions.
- US President Trump imposed a 25% tariff on all auto imports effective April 3, with more threats to Canada and the European Union (EU).
- The market reaction to the data was muted, with mixed performance across US Treasury yields dampening USD enthusiasm.
- The focus now shifts to the Personal Consumption Expenditures report, the Federal Reserve’s (Fed) preferred inflation gauge.
Technical analysis
The US Dollar Index shows signs of weakness on Thursday after earlier gains were retraced, currently fluctuating within the 104.07–104.65 range. Despite a buy signal from the Moving Average Convergence Divergence (MACD), the overall bias remains bearish as the 20, 100, and 200-day Simple Moving Averages (SMA) all tilt lower. The Relative Strength Index (RSI) combined with the stochastic oscillator signals overbought conditions, while the Momentum (10) indicator and the Awesome Oscillator suggest limited upside potential. The Average Directional Index (ADX) at 29.777 indicates neutral trend strength. Key resistance is seen at 104.296, 104.536, and 104.616. Support is found at 104.175 and 103.923.
GDP FAQs
A country’s Gross Domestic Product (GDP) measures the rate of growth of its economy over a given period of time, usually a quarter. The most reliable figures are those that compare GDP to the previous quarter e.g Q2 of 2023 vs Q1 of 2023, or to the same period in the previous year, e.g Q2 of 2023 vs Q2 of 2022. Annualized quarterly GDP figures extrapolate the growth rate of the quarter as if it were constant for the rest of the year. These can be misleading, however, if temporary shocks impact growth in one quarter but are unlikely to last all year – such as happened in the first quarter of 2020 at the outbreak of the covid pandemic, when growth plummeted.
A higher GDP result is generally positive for a nation’s currency as it reflects a growing economy, which is more likely to produce goods and services that can be exported, as well as attracting higher foreign investment. By the same token, when GDP falls it is usually negative for the currency. When an economy grows people tend to spend more, which leads to inflation. The country’s central bank then has to put up interest rates to combat the inflation with the side effect of attracting more capital inflows from global investors, thus helping the local currency appreciate.
When an economy grows and GDP is rising, people tend to spend more which leads to inflation. The country’s central bank then has to put up interest rates to combat the inflation. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold versus placing the money in a cash deposit account. Therefore, a higher GDP growth rate is usually a bearish factor for Gold price.
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