Dollar Falls as US Economy Brakes

USD weekly outlook TradersDNA

The US dollar traded lower against a basket of currencies Thursday after government data revealed a sharp slowdown in US economic growth in the third quarter, clouding the Federal Reserve’s already complicated timeline for raising interest rates.

The US economy expanded just 1.5% annually in the third quarter, below forecasts calling for 1.6%, the Commerce Department reported Thursday.

The July to September period marks a sharp slowdown from the second quarter when gross domestic product expanded at a 3.9% annual rate.

The deceleration in growth in the third quarter reflected a downturn in private inventory investment, exports, nonresidential fixed investment and personal consumption expenditures, government data showed.

The US dollar index, a weighted average of the greenback against six global currencies, recovered at 97.52, declining 0.3%. The dollar index reached a session low of 97.29 just prior to the advance GDP estimate.

Core personal consumption expenditures – the Federal Reserve’s preferred measure of inflation – rose 1.3% in the third quarter, down from 1.9% in the April to June period.

The Federal Reserve on Wednesday left interest rates unchanged, but signaled at a possible rate increase in December. The dollar index rallied on the news, closing at the highest level since early August.

The dollar was virtually unchanged against the euro, but edged lower against the British pound, Japanese yen and Swiss franc.

In European data, German inflation improved slightly in October, the Federal Statistics Office reported Thursday. Germany’s harmonized index of consumer prices edged up 0.2% in the 12 months through October following a 0.2% drop the previous month.

The European Commission will release euro area CPI data on Friday.

European stocks traded lower on Thursday, as investors weighed the potential impact of a Federal Reserve rate rise in December. The pan-European STOXX 600 Index slipped 0.3% in intraday trade.

London’s FTSE 100 Index was down 1%. Germany’s DAX fell 0.4%. Major averages in Paris and Madrid were also down 0.8%.

Weakness in Europe followed another mixed session in Asia. Tokyo’s Nikkei Index rose for a second consecutive day ahead of the Bank of Japan rate announcement.

Chinese stocks closed mixed. The Shanghai Composite Index rose 0.4%, while Hong Kong’s Hang Seng Index fell 0.6%.