Date: 27 Jul 2018
Friday’s US economic data focus for the currency markets will be the release at 1330h London time of the advance estimate for Q2 US gross domestic product growth with White House economic advisor Larry Kudlow quoted yesterday as saying “You’re going to get a GDP number on Friday that’s going to be a very impressive number.” The consensus forecast among economists polled by Reuters is for a 4.1 per cent print though it should be noted that, after Thursday’s US Durable Goods data, the Atlanta Fed has lowered its own Nowcast estimate to 3.8 per cent from a prior 4.5 per cent forecast. Traders might logically wonder whether, with expectations for US Q2 GDP so high (and so presumably priced in to the USD’s value), what will be needed to give markets a new head of steam? Or is the risk that the markets have bought the talk and may sell the fact or, which would certainly surprise, that this much-heralded US data point underwhelms? But there’s also another angle that traders might wish to consider. What if the markets decide that today’s US GDP data is as good as it’s going to get? Part of the USD’s allure over the past many months has been the fact that the pace of growth of US economic expansion has been so much quicker than in other economies. If markets were to decide that the rate of growth of US GDP expansion that will be exhibited into today’s data is unsustainable, then the implication would be that the pace of expansion of US GDP in the second half of 2018 will be slower than in the first six months of the year. That might not affect any kneejerk currency market reaction to the headline data but looking further ahead it could give traders some pause for thought.
by Neal Kimberley, External Currency Analyst.