Dollar Index Pushes Forward as Q2 GDP Accelerates


The US dollar firmed against a basket of world currencies on Thursday, as consumer spending powered US economic growth in the second quarter despite continued weakness in business spending.

The dollar index, a trade-weighted average of the greenback against a basket of six currencies, was trading at daily highs in the early New York session, advancing 0.5% to 97.44.

The dollar continued to strengthen after the Department of Commerce said US economic growth accelerated 2.3% annually in the second quarter, following an upwardly revised gain of 0.6% in Q1 that was previously reported as a mild contraction. Economists forecast a 2.6% annual increase in the second quarter, but hadn’t factored in an upward revision to first quarter GDP.

Consumer spending, which represents more than two-thirds of US economic output, rose 2.9% in the second quarter following a downwardly revised gain of 1.8% in the first three months of the year. Growth in consumer spending and private domestic demand outweighed a struggling energy sector and weak business spending, official data showed.

The Federal Reserve on Wednesday held its target for the federal funds rate at 0% to 0.25%, as expected, but kept the door open to a rate increase later this year. The Fed upgraded its view of the labour market and said the broader economy was expanding “moderately.” According to analysts, the Fed could begin lifting interest rates in either September or October.

The dollar firmed against most of its major peers on Thursday. The greenback gained traction against the euro, as the EUR/USD fell 0.3% to 1.0949. The pair is likely to find initial support at 1.0939. On the upside, resistance is likely to be found at 1.1057.

In Eurozone data, German inflation remained very weak in July, providing additional scope for the European Central Bank to maintain and even increase its quantitative easing efforts. Germany’s consumer price index (CPI) rose 0.2% in the 12 months through July, down from 0.3% the previous month. Germany’s harmonized index of consumer prices (HICP) was unchanged at 0.1% annually, official data showed.

The European Commission will report on euro area CPI on Friday. Annual CPI for the 19 countries sharing the euro is expected to hold at 0.2% this month, unchanged from June.

In other trading, the dollar declined against the British pound, with the GBP/USD advancing 0.2% to 1.5627.

Elsewhere, the dollar moved higher against the yen, with the USD/JPY advancing 0.3% to 124.39.