A Weak GDP Growth Drags Down U.S Dollar

At London’s trading session, the safe-haven currency fell on reports that the U.S. economy grew at its slowest pace since the pandemic recovery began as snarled supply chains and a rise in Covid-19 cases throttled spending and investment.

According to the Commerce Department’s preliminary estimate Thursday, gross domestic product increased 2% on an annualized basis after increasing 6.7% in the second quarter.

As of writing, the DXY index, which measures the strength of the dollar against a basket of major currencies, fell almost 200 basis points to trade at 93.6 index points

For the second session in a row, DXY was on the defensive on Thursday.

If the index cannot clear recent tops around 94.00 in the near term, it might lead to a deeper pullback in the coming sessions. In that regard, the immediate target should be at the 93.50 area before the 55-day Simple Moving Average is reached at 93.32.

In the quarter, GDP grew at the slowest pace since the 31.2% decline in the second quarter of 2020, when Covid-19 turned into a pandemic that led to a severe economic shutdown that sent tens of millions to the unemployment lines and slowed growth nationwide.

An increase in trade deficit at the world’s largest economy, which reached a near-record $73.3 billion in August, unhinged gains, as did a decline in residential fixed investment and federal government spending.

Nevertheless, the European Central Bank (ECB) held rates at 0% as forecasted, maintaining the current outlook from the previous meeting.

In order to provide currency markets guidance around the stimulus, the December meeting will now serve as a placeholder. As the transitory outlook on inflation is being questioned, the ECB is gradually being split into dovish and hawkish camps.