Despite more turbulence midweek thanks to the July FOMC rate decision, the US Dollar has a chance to land in positive territory for the full week. After the Federal Reserve laid bare their concerns over incoming data and inflation on Wednesday, it's quite clear that the only thing that can truly help the US Dollar stabilize is a stretch of improved economic reports.
Today's release of the preliminary Q2'17 US GDP report squarely fits the definition of being an important economic report that could help change the narrative around the greenback. Annualized US GDP in Q2’17 is expected to rebound from the prior quarter’s sluggish growth rate of +1.4% to +2.7%, according to a Bloomberg News survey. The data looks to continue the trend that has been first quarter weakness followed by second quarter strength, as has seemingly been the case in most years in the post-GFC world.
Overall, there still seems to be a sharp divide between ‘soft’ and ‘hard’ economic data, with confidence readings surging without a commensurate gain in actual economic activity. The Atlanta Fed GDPNow forecast sees last quarter’s growth at +2.8%, a touch better than surveys. Evidence of a rebound in growth could instill confidence in the Fed’s projected tightening path, which would help the US Dollar.
Rate expectations currently seem to be on the floor, with March 2018 priced in as the most likely period for the next 25-bps hike; a simple correction back to pricing in December 2017 as the next meeting for a hike would be a significant boost for the beleaguered US Dollar.
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