07.10.2022
Chicago 12, Melborne City, USA
Business

US Dollar Stumbles as America Enters a Technical Recession

Despite losing ground following the US Fed interest rate announcement and poor GDP reports, the US dollar regained a bullish countenance on Thursday, pushing close to the 107.00 level. This rebound comes after the greenback fell to the 106.05 mark in the Asian session today, its lowest point since July 5.

According to the data released by the US Bureau of Economic Analysis, America’s Gross Domestic Product (GDP) fell by 0.9% annualized rate in Q2 2022. This was a significant deviation from the widely-expected 0.5% increase forecasted by analysts.

That said, the latest report suggests that the US is technically in a recession, after posting two consecutive quarterly GDP contractions. This comes as the US Fed fights aggressively to curb rising inflation in the county.

Commenting on the report, Mazen Issa, a senior FX strategist at TD Securities, explained: “For now, the market is running with the idea that slowing growth will cause the Fed to blink and that we’re entering a recession.” Issa further noted that “the challenge here is that in order to get a weak dollar, you need a strong euro, and that is not going to happen given the headwinds facing Europe.”

US Dollar Fell on Wednesday Following Unsurprising Rate Hike

The dollar fell on Wednesday after the US Fed announced a 75 basis point (bps) rate hike on Wednesday, which had already been priced in by capital markets, sparking a rally in risk assets. Furthermore, Fed Chair Jerome Lowell’s comments at the FOMC meeting triggered hopes of a less aggressive hike campaign in the coming months.

Commenting on the dollar’s performance, Francesco Pesole and Frantisek Taborsky of ING FX explained in a note:

“Yesterday’s long-squeeze is not a sign of a longer-lasting soft period for the dollar, in our view. Upside risks for the greenback remain material due to an unstable global risk environment and still broadly supportive Fed stance.”

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