GDP, Fed's Tough Talk on Inflation Boost Dollar

This week has so far been a good one for the US dollar - the US currency rallied higher against other currencies like the Euro, Swiss franc, British pound and Japanese yen after the positive US GDP data that met expectations, following Wednesday’s better-than-expected durable goods orders.

The government said today that US gross domestic product, a measure of goods and services produced, rose at a seasonally adjusted 0.9% annual rate in the first quarter, which was slightly higher than the first estimate of 0.6% growth in the first quarter. It’s a little irrelevant to still debate whether the US was “really” in a recession from January to March even though the GDP number shows borderline growth as we are already more than half into the second quarter. The biggest drag on the US economy is the fall in consumer spending, which makes up about 70% of GDP. A huge chunk of the overall GDP - about 1.17 percentage points - was cut by the 25.2% drop in residential fixed investment.

Higher Rates In US Soon?

The US dollar also got a boost from Dallas Fed’s Richard Fisher who hinted that the Fed might raise interest rates “sooner rather than later”. He said that if inflation and inflation expectations keep getting worse, that he would “expect a change of course in monetary policy to occur sooner rather than later, even in the face of an anemic economic scenario”.

Fisher, a voting member of the FOMC, is the only member to dissent three times from decisions to cut the Fed funds rate, preferring no change. Yesterday Minneapolis Fed’s Gary Stern said that inflation is too high and the Fed will need to consider the timing and magnitude of any reversal in interest rate cuts.

UK Home Prices Fall Again

Nationwide reported that UK house prices fell 2.5% month-on-month in May, worse than the 0.5% decline expected, and that is the largest monthly decline ever, since record-keeping began in January 1991. May’s drop in home prices was the 7th straight month of declines, which was the longest consecutive period of monthly falls since 1992.

Forex Trading

EUR/USD broke out below 1.5600 to reach an intraday low around 1.5520. Downside targets are possibly 1.5480-90, then 1.5430. USD/CHF rallied for the third day in a row and hit a high around 1.0480 and next topside targets are around 1.0530, 1.0570-90. GBP/USD fell further today to to 1.9670 on weak housing data from the UK.

Friday:

German retail sales 0600 GMT

Italy CPI, Eurozone CPI, Eurozone unemployment rate 0900 GMT

Canada GDP 1230 GMT

US PCE core, personal spending 1230 GMT

Comments

[John Pseudonym]

"He said that if inflation and inflation expectations keep getting worse"

Inflation? What inflation? The price of washing machines and card are flat or falling. That's not inflation...

So what if gas and food are increasing; who buys that stuff on a regular basis?

[DP]

that's what she said

[Maquiavelli]

The FED has been saying for a while that if inflation is above their comfort target they will act - they haven't. Their new word is if inflation "accelerates"... What does that mean? Does it means that they will act if the rate of inflation increase is above a set target? Sad thing is that the FED is basically lying about their inflation policies. JMHO

[User 143167]

It is Fisher "the hawk in the dovish Fed". So why cares?

[moonbat1775]

Why doesn't the Fed just pick who it wants to give money to, print it up, and deliver it secretly? All this raising and lowering rates must be an awkward way to go about this.

If I were God, I don't think I would reward an economic system built on fraud, deception and theft via inflation, at least not forever.
Last I heard, Alan Greenspan was an atheist. I guess he was not concerned during his reign.

just a rant