The Q3 daunting GDP figures in the United States managed to cause the Dollar to slump as the American economy added just 2%. This is compared to the expected 2.7% and the amazing 6.7% in the Q2, 2021. This is quite a disappointing slowdown that poses risks to the economic recovery of the largest economy in the world.
It is significant to point out that these figures were released just ahead of the Federal Reserve’s (Fed) meeting on November 2-3, that should decide on the gradual tapering schedule. Such fears of the slowing down of the U.S. economy are inflated by record inflation that went up to 5.4% in September, which was far above the target of 2% set by the Fed.
Disappointing GDP data amplify stagflation risks, where low economic growth rates are accompanied by high inflation. And this is the case where monetary regulators could be powerless to support economic recovery. Any actions towards a tighter monetary policy may hamper economic growth while no actions would mean even higher inflation, still without significant growth.
So, the GDP figures hurt the U.S. Dollar badly as the U.S. Dollar index fell to 93.4 points from 94 points.
The European Central Bank (ECB) even showed a dovish monetary stance on Thursday after the meeting of the European monetary regulator. The president of the ECB, Christine Lagarde, said in the follow-up press conference that higher inflation is expected in the Eurozone. She even hinted to investors that their expectations for a prompt interest rate hike is drastically differ from ECB’s own position. Such dovish messages could weaken the Euro sharply, but the unexpected drop in the GDP growth in the United States seems to outweigh what could be the near future results in Europe.
Technically, the Euro managed to find itself at the upper margin of the trading range, located at 1.1670. If the single European currency would keep its gains, the EURUSD may move higher to 1.1700-1.1760. Nevertheless, even with such a possible spike, the Euro remains on the existing downslide trend with the correction to the 50% level of the Fibonacci retracement.
Another interesting observation is that the U.S. Dollar index slipped below the support of 93.5 points and that may drag it further down to 92.9 points. This would ultimately mean the rise of the Euro, which is the largest component in this index. But this would not break an upward trend for the Greenback, it would just chart another support level for the EURUSD.
Analysis and opinions provided herein are intended solely for informational and educational purposes and don't represent a recommendation or investment advice by TeleTrade.
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