Dollar Under Pressure as U.S. Q2 GDP Unexpectedly Contracts


Rich Asplund, Barchart

Jul 28, 2022


The dollar index (DXY00) on Thursday fell by -0.12% and posted a 3-week low.  The dollar was under pressure Thursday on negative carry-over from Wednesday afternoon’s comments from Fed Chair Powell that bolstered speculation the Fed will slow the pace of interest rate increases. Also, Thursday’s U.S. economic data was weaker than expected and weighed on the dollar.  In addition, a rally in stocks Thursday curbed the liquidity demand for the dollar.  The dollar recovered from its worst levels Thursday in weakness in the euro, which fell on disappointing Eurozone data and dovish ECB comments.


Thursday’s U.S. economic data was bearish for the dollar.  U.S. weekly initial unemployment claims fell -5,000 to 256,000, showing a weaker labor market than expectations of 250,000.  Also, U.S Q2 GDP fell -0.9% (q/q annualized) weaker than expectations of a +0.4% increase.  The Q2 GDP report of -0.9% was the second consecutive quarterly decline, which is one definition of a recession.


EUR/USD (^EURUSD) on Thursday fell by -0.16%.  Bearish Eurozone economic data Thursday pressured EUR/USD after Eurozone July economic confidence fell more than expected to a 17-month low and the German July CPI rose more than expected.  Also, dovish comments Thursday from ECB Governing Council member Visco undercut EUR/USD as did a fall in the 10-year German bund yield to a 3-month low of 0.797%.


Eurozone July economic confidence fell -3.5 to a 17-month low of 99.0, weaker than expectations of 102.0.


German July CPI (EU harmonized) rose +8.5% y/y, stronger than expectations of +8.1% y/y.


ECB Governing Council member Visco said "there is risk of recession" in the Eurozone...