Dollar Losses After Bad GDP Print

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Dollar Losses After Bad GDP Print

OCTOBER 28, 2021

The U.S. dollar is a touch softer this morning, although it did make some strides against the Euro. 

Overview

Once again global equities are ticking higher and remain near their all-time peaks.  U.S. futures are also in the green, boosted by a continued impressive earnings season.  The question for risk appetite and thus the dollar becomes, can sentiment remain positive in the face of higher inflation?  In the short term, it appears so far so good.

This morning’s data showed that there might be chinks in the risk-on armor, however.  U.S. third-quarter GDP disappointed, registering at 2.0% missing estimates of 2.6%.  Growth was expected to slow considerably from Q2 (6.7% growth) as the Delta variant of the coronavirus raged and caused the economy to retreat. But today’s print is a warning sign which could cause the Federal Reserve to act more dovish despite growing inflation fears.  The central bank faces a big test as to whether it can thread the needle between recovery and keeping inflation from getting out of control.

What to Watch Today…

  • No major economic events scheduled for today

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EUR

The Euro has experienced jerky ranges so far in early trading but is overall slightly weaker versus the U.S. dollar.  The European Central Bank announced today that they would keep the pairing of stimulus on their previous track.   The ECB said it would continue to conduct emergency bond-buying at a “moderately” slower pace.  The emergency 1.85 trillion-euro program known as PEPP will continue until at least March of next year.

The dovish stance was mostly expected by market participants.  The ECB has been steadfast despite rising inflation pressures within Europe and around the globe.  Earlier this morning, Spain released data that showed inflation pressures gained the most in three decades.  German preliminary consumer prices rose to 4.6%, also above expectations.

ECB President Christine Lagarde will hold a press conference shortly to explain the central bank’s reasoning and decision.

CAD

The Canadian dollar found early support yesterday following the decision by the Bank of Canada to end its bond-buying stimulus.  The move caused traders to increase bets that rate hikes would be coming sooner rather than later.  However, the loonie gave back some of its knee-jerk gains throughout yesterday’s session.

The Canadian dollar is a bit stronger this morning but is still about 0.4% off of yesterday’s best.

The price of oil has declined over the last two days, likely limiting the Canadian dollar’s strength following the BoC meeting.

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