The US dollar advanced for a third consecutive day on Thursday, as oil prices rebounded more than 4% amid a bigger than expected rise in US second quarter GDP.
The dollar index, a weighted average of the greenback against the euro, yen, pound, franc, Canadian dollar and krona, climbed 0.6% to 95.71.
The EUR/USD plunged 0.7% to 1.1235, its third consecutive drop. The pair had reached an 8-month high on Black Monday. The EUR/USD faces immediate support at 1.1217 and resistance at 1.1487.
The GBP/USD declined 0.4% to 1.5407, its third consecutive drop. Immediate support is located at 1.5367 while resistance is likely found at 1.5639.
The dollar received a liftoff after the Department of Commerce said second quarter GDP rose much faster than previously estimated.
US gross domestic product – the value of all goods and services produced in the economy – rose 3.7% annually in the second quarter, government economists reported on Thursday. That’s well above the advance estimate of 2.3% that was reported last month.
The revised estimate, which came in the wake of the biggest stock market selloff since the financial crisis, provided assurance that the US economy was on solid footing. Consumer spending, which accounts for more than two-thirds of US economic activity, expanded 3.1% in the second quarter, up from the previous estimate of 2.9%.
A key measure of private domestic demand increased 3.3% compared with the previous estimate of 2.5%, official data showed.
Oil prices also rebounded on Thursday. West Texas Intermediate (WTI) for October delivery rose $1.61 or 4.2% to $40.21 a barrel on the New York Mercantile Exchange. Global benchmark Brent crude traded up $1.76 or 4.1% at $44.90 a barrel on the ICE Futures exchange in London.
Oil prices were riding the momentum of Wall Street, which on Wednesday finally broke a six-day skid that shaved off more than $2 trillion in market capitalization. Stock prices were trading higher on Thursday morning, with the Dow Jones Industrial Average up 1.2% or nearly 200 points.
European and Asian markets rallied across the board on Thursday as investors reacted to the latest round of intervention from the People’s Bank of China. The central bank on Wednesday pumped 140 billion yuan into the financial system just one day after cutting short-term interest rates by 25 basis points.
The Shanghai Composite Index on Thursday ended its worst rout in nearly two decades, closing up 156.3 points to 3,083.59.
Based out of Toronto, Canada, Husni Sam Borji is senior macroeconomics analysts who contributes regularly to TradersDNA, where he examines the global financial markets. Husni Sam has authored dozens of government reports and industry whitepapers, as well as thousands of financial articles. Husni Sam holds a BA from the University of Windsor and a Master’s degree in Economic Public Policy from McMaster University.
His expertise includes macroeconomics, fundamental analysis, industry research and global political economy.