Where is the US growth coming from?

It seems that inventory growth has managed to add +0.32% to Q2 GDP growth. However, with consumer spending slowing and government outlays seen dropping, this scenario is managing to paint a picture of a recovery now struggling with too little demand and represents the beginning of slower production cycle. Exports are the sole bright spot for the US, rising for a third consecutive quarter despite what is played out across the Atlantic. With the current global data consistently showing sign of slowing down, the market now expects the Fed to move towards QE3. Will it be next week or September? With Ben hinting that the he and his fellow policy makers could take further action when needed is probably the green light for dollars fall and end of this rally.

Below are some other highlights of the week:


  • USD: Fed officials continue to suggest that further QE remains very much on the table. SF Fed President Williams stated that the US will make little progress tackling high unemployment before 2014 unless the Fed eases policy further. He suggested that open-ended QE might be necessary; however, he declined to call directly for a Fed move on Monday.
  • USD: The dollar midweek soft blip occurred amid rising hopes for policy response from the US and Europe. Both the NY Times and WSJ reported that the Fed is “leaning closer to stimulus if no growth is seen.” Are they preparing the market for next week perhaps? Are the markets no longer viewing QE as automatically negative for a currency? Perhaps an early move towards more asset purchases could provide support for risk appetite.
  • CAD: Canadian monthly retail sales bounced back less than expected in May as dealers sold less cars and the price of gas fell. Overall retail sales climbed +0.3% to a seasonally adjusted +38.9b. The prior months decline was revised down to -0.6% from -0.5%. However, sales volume grew +0.7%, the strongest gain in 10-months.
  • USD: Sales of newly built homes in the US fell in June to the lowest level in five months (+350k vs. +382k, down -8.4% m/m). The median price for a new home fell -3.2% from the same month a year ago to +$232.6k. The fact that prospective home owners face tougher credit restrictions is making it hard to secure record low mortgage rates.
  • USD: US weekly claims plunging -35k to +353k has capped a volatile few weeks that has been affected by the fourth of July and the auto retooling season. Last week’s data is relatively clean according to analysts and perhaps it’s a hopeful sign that the underlying trend is improving. Continuing claims for the week also fell -30k to +3.287m.
  • USD: Headline durable goods orders for June were up +1.6%, beating expectations of a modest +0.4% gain. But the details were weak, with ex-transport orders sinking -1.1% and non-defense capital goods (a proxy for business investment was down -1.4%.
  • USD: National Association of Realtors pending Home Sales Index slipped -1.4% last month and this after the previous month’s +5.4% surge. Despite the monthly disappointment, the market expects a modest boost from distressed sales over the coming months, as the April’s legal settlement results in a rise in foreclosures and short sales working their way through the system.
  • USD: US growth pulled back further during Q2 as consumer spending slowed (+1.5% vs. +2.0%) and suggests that domestic fiscal worries will become more of a fiscal drag. Expect President Obamas re-election campaign to take a blow. In a positive sign, exports grew for the third consecutive quarter posting a +5.3% gain from April to June, suggesting that the Euro sovereign debt crisis is yet to hurt. But overall trade was a drag on the economy as imports grew faster at +6% during the quarter.
  • USD: University of Michigan sentiment index edged up to 72.3 on Friday for the end of July vs. a reading of 72 in the first few days of the month. Consumers technically have ended the month feeling only marginally better about the economy. They are constantly battling with a weak job market, stagnant pay rise and uncertainty of future tax policy.



ASIA Week in FX



  • Monetary Policy meetings from GBP, USD and EUR dominate
  • Confidence data is delivered from USD and NZD
  • Manufacturing and non along with PMI’s are released in CNY, EUR, GBP and USD
  • Sales, growth and trade are presented from CAD, AUD and CHF
  • AUD and GBP release building stats
  • USD finishes the week with employment


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Dean Popplewell

Dean Popplewell

Vice-President of Market Analysis at MarketPulse
Dean Popplewell has nearly two decades of experience trading currencies and fixed income instruments. He has a deep understanding of market fundamentals and the impact of global events on capital markets. He is respected among professional traders for his skilled analysis and career history as global head of trading for firms such as Scotia Capital and BMO Nesbitt Burns. Since joining OANDA in 2006, Dean has played an instrumental role in driving awareness of the forex market as an emerging asset class for retail investors, as well as providing expert counsel to a number of internal teams on how to best serve clients and industry stakeholders.
Dean Popplewell