Forex

Dollar Weakens following Revised GDP

The US dollar traded lower on Tuesday after government economists trimmed their third quarter estimate for US GDP growth.

The US dollar traded lower on Tuesday after government economists trimmed their third quarter estimate for US GDP growth, putting the world’s largest economy on track for its tenth straight year of below 3% growth.

Gross domestic product (GDP) – the value of all goods and services produced in the economy – expanded 2% annually in the third quarter, the Commerce Department reported on Tuesday. That’s down slightly from last month’s estimate of 2.1% and well below the 3.9% annual pace seen in the second quarter.

The latest figures put US GDP growth at 2.2% through the first nine months of 2015. At this pace, the economy is on pace to grow less than 3% this year.

The US dollar declined for a third consecutive day, nearly reversing all of the gains it made after the Federal Reserve raised interest rates last Wednesday. The dollar index, a weighted average of the US currency against a basket of six rivals, declined 0.3% to 98.05.

The dollar lost ground to the euro Tuesday, with the EUR/USD climbing 0.5% to 1.0969. The pair faces resistance at 1.1010, the high from December 10. On the downside, initial support is likely found at 1.0895, the 50-day simple moving average.

The dollar also traded lower against the Japanese yen and Swiss franc.

Higher gold prices also pressured the US currency at the start of the week. Gold prices have rebounded nearly $30 since plunging to six-year lows last Wednesday. February gold closed at $1,080.60 a troy ounce on Monday, the highest level since December 4. The yellow metal was trading slightly lower on Tuesday, falling $5.20 or 0.5% to %1,075.40 an ounce.

The rise in precious metals is expected to be short-lived, as tighter Fed policy increases the opportunity cost of holding non-yielding assets. The Fed is expected to raise interest rates four times next year, according to the latest “dot plot” summary of policymakers’ expectations.

In energy, oil prices rebounded slightly on Tuesday, but continued to trade near multi-year lows. The West Texas Intermediate (WTI) benchmark for US crude climbed 48 cents or 1.3% to $36.29 a barrel on the New York Mercantile Exchange. Global benchmark Brent crude also rose 12 cents or 0.3% to $36.47 a barrel on ICE Futures Europe.

On Wednesday the US Energy Information Administration (EIA) will release its crude inventory report for the week ended December 18. Crude stockpiles surged 4.8 million barrels in the week ended December 11, placing more pressure on oil prices.

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