Why US GDP is perfect for the USD, especially against the EUR

March 28, 2019 Off By admin-445
  • US GDP came out at 2.2% against 2.4% expected.
  • The US economy continues looking better than its peers.
  • While Q1 was probably worse due to the shutdown, the greenback can gain.

US growth is back to the new normal: 2.2% annualized, bang in the middle of the “new normal” or “new mediocre” if you wish: 2-2.5%. Q4 growth follows two robust quarters beforehand, high growrth that was fueled by Trump’s tax cuts. The fiscal stimulus effect is off, and now it’s back to unimpressive growth.

But while the US economy slowed down in Q4 2018, it outperformed its peers which endured more significant slowdowns. The euro-zone saw only 0.2% QoQ or 0.8% YoY, and so did the UK. The central banks in Canada, Australia, and New Zealand all made dovish shifts alongside the .

The US Dollar remains the cleanest shirt in the dirty pile. It enjoys two advantages.

First, the greenback is the world’s reserve currency and a safe-haven one. Investors flock to the safety of the dollar in times of trouble, and these are times of trouble.

Secondly, the US economy is growing at “Goldilocks” levels, not for the US economy, but the greenback. On the one hand, the world’s No. 1 economy is not growing too slowly to trigger immediate rate cuts by the , moves to weaken the dollar. On the other hand, it is not growing fast enough to pull the rest of the world forward.

The GDP data confirm this status. But what currencies can the greenback gain against? The euro looks like a good candidate. The yen is also a safe-haven, making it hard for the dollar to gain against. Trading in the British pound is plagued by Brexit. It is nearly impossible to assess how Brexit will end, making Sterling roughly untradable.

However,  did not fall too fast despite the slowdown in Germany and the ECB’s dovish shift. The fall in EUR/USD does not reflect that, especially after the forward-looking German Manufacturing PMI plunged to recessionary levels.

Source: www.forexcrunch.com