US dollar shutters after US GDP slows to 1.6%
As Q1 2024 GDP in the US dips to 1.6%, missing forecasts, the dollar declines against key currencies. With inflation fears looming, investors eye upcoming PCE data for signals on the Fed's direction amid stagflationary pressure.
Key points
- US Q1 GDP came in at an annualized 1.6%, below market expectations of 2.5%
- GBP/USD rose to 1.2500
- S&P 500 opened lower and traded below 5000 in the hours following
- PCE inflation data for March arrives Friday morning
Q1 2024 GDP growth misses expectations, falls to 1.6%
The initial GDP growth figures for Q1 2024 in the US have revealed a slowdown to an annualized 1.6%, a decrease from the previous quarter’s 3.4%, and missing the 2.5% economists had predicted. This represents the lowest growth rate observed since Q2 2022, signaling potential concerns for the US economy's momentum.
US dollar slipped against major currencies
The US dollar experienced a downturn against key currencies, with GBP/USD climbing above 1.2500 and AUD/USD reaching 0.6500. This shift reflects mounting concerns over the future growth of the US economy and its impact on currency valuation.
US stocks fell sharply as stagflation fear builds
Fears of stagflation contributed to a significant drop in US stocks, with the S&P 500 plummeting below $5000 midmorning while the VIX, often referred to as the stock market's fear gauge, escalated to 17.5. This sharp decline underscores growing investor anxiety over potential economic stagnation amidst persistent inflation.
Why this reading could be a lose-lose for the Fed and markets
The latest GDP figures present a challenging scenario for both the Federal Reserve and the financial markets, particularly as inflation data continues to prove sticky above 2%. This situation complicates the Fed's path forward, potentially impacting monetary policy decisions.
PCE inflation data tomorrow could ease markets, or confirm fears
The forthcoming March PCE inflation data tomorrow morning represents a critical juncture. Should inflation show signs of converging toward the Fed’s 2% goal, it could signal a promising economic trajectory to lower rates. However, unyielding inflation may intensify concerns regarding the Federal Reserve's next moves in stabilizing the economy.
How to trade US dollar
- Open an account to get started, or practice on a demo account
- Choose your forex trading platform
- Open, monitor, and close positions on USD pairs
Trading forex requires an account with a forex broker like IG. Many traders watch major forex pairs like GBP/USD and USD/JPY for potential opportunities based on economic events such as inflation releases or interest rate decisions. Economic events can produce more volatility for forex pairs, which can mean greater potential profits and losses as risks can increase at these times.
You can help develop your forex trading strategies using resources like IG’s YouTube channel. Our curated playlists can help you stay up to date on current markets and understanding key terms. Once your strategy is developed, you can follow the above steps to opening an account and getting started trading forex.
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