US Q3 Growth to Boost Dollar

US Q3 Growth to Boost Dollar

The US dollar was higher against major pairs on Thursday. The greenback is near 2018 highs as risk aversion has made the currency a preferred safe haven destination. The US stock market rebounded with a 3 percent rise as buyers went back into the market stoping the decline that wiped out this year’s gains.

The US GDP first estimate for third quarter will be released on Friday, October 26 at 8:30 am. Economists are forecasting a 3.3 percent gain. Geopolitical uncertainty and rate differentials will continue to weigh on markets. The ECB did not provide any further guidance and did not properly address the rising headwinds facing Europe.

  • US Growth lower than last quarter but still ahead of other major economies
  • US GDP price index forecasted at 2.1 percent
  • US yields remain near 3.12 percent

Euro Lower Despite ECB Sticking to End QE

The EUR/USD lost 0.16 percent on Thursday. The single currency is trading at 1.1373 after European Central Bank (ECB) President Mario Draghi pledged to continue its tightening policy. The ECB chief once again had a negative effect on the currency. As Draghi continued his press conference he highlighted the headwinds facing Europe, but the market does not share the optimism of the central bank.

With the upcoming mid-term elections in the US the first estimate of the Gross Domestic Product (GDP) for the third quarter rises in importance. A strong reading is expected given the US economy has kept up the rate of recovery. The market is pricing in a 3 percent rise, but a higher growth rate is possible with political and economic implications.

The US economy appears to have slowdown from last quarter but even Fed Banks are torn on where the data point will come in. New York Fed estimates a 2.13 percent rise and the Atlanta Fed at 3.6 percent. This being the first release it is subject to further revisions, but they usually don’t have the same impact as the advance data.

Loonie Lower Ahead of US GDP Data

The USD/CAD rose 0.11 percent on Thursday. The currency pair is trading at 1.3070 after the lift to interest rates by the Bank of Canada (BoC) is now in the past and the reality of a stronger US economy and higher rates from the Fed brought the loonie lower. The Canadian central bank is expected to hike in December or January, but again the Fed could match that rate with two by March. The December rate lift of American interest rates is a high probability.

usdcad Canadian dollar graph, October 25, 2018

Oil and gold and modest rises despite the strength of the US dollar, but risk aversion continues to plague the market. Political events around the globe have investors on edge after the safety blanket of record high returns form the stock market was quickly removed.

Sterling Down as UK Government Disagrees on Its Own Strategy

The GBP/USD has lost 1.89 percent this week. The issue of the Irish border continues to put pressure on the currency as a post Brexit trade agreement cannot be negotiated until there is a clear border. If the EU does not comprehend the political and historical significance of a hard Irish border, the UK government have also not put forth the best case that they really understand what leaving the Union really entails.

The free transfer of goods and people cannot continue unchanged, unless there is an agreement, and back to square one, there can’t be one if there is no backstop. The Brexit optimism of earlier in the month of being 90 to 95 percent done is proving that the devil is indeed in the details and the final stretch will be the most difficult one, specially as the deadline draws closer.

Market events to watch this week:

Friday, October 26
8:30am USD Advance GDP q/q

*All times EDT
For a complete list of scheduled events in the forex market visit the MarketPulse Economic Calendar

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza