WednesdayÂ’s session witnessed the US Dollar, as represented by the Dollar Index (DXY), climb to 106.00, a level last observed in early May.
The economic landscape in the US continues to portray resilience. A few signals of disinflation are noticeable, but it still holds on which makes the Federal Reserve (Fed) not fully embrace the easing cycle.
The technical outlook remains solidly optimistic with indicators firmly in the green. The Relative Strength Index (RSI) preserves a level above 50, while green bars are developing in the Moving Average Convergence Divergence (MACD), suggesting a gathering of strength among bulls. The progressive incline of these indicators demonstrating that the DXY may be preparing for additional upside.
Furthermore, the DXY Index maintains a standing position above the 20, 100 and 200-day Simple Moving Averages (SMAs), confirming a persistently positive outlook. With the Index reaching levels not seen since early May and with indicators showing a propensity for further increment, the DXY is oriented toward further gains. The 106.50 level is the next target for bulls.
A country’s Gross Domestic Product (GDP) measures the rate of growth of its economy over a given period of time, usually a quarter. The most reliable figures are those that compare GDP to the previous quarter e.g Q2 of 2023 vs Q1 of 2023, or to the same period in the previous year, e.g Q2 of 2023 vs Q2 of 2022. Annualized quarterly GDP figures extrapolate the growth rate of the quarter as if it were constant for the rest of the year. These can be misleading, however, if temporary shocks impact growth in one quarter but are unlikely to last all year – such as happened in the first quarter of 2020 at the outbreak of the covid pandemic, when growth plummeted.
A higher GDP result is generally positive for a nationÂ’s currency as it reflects a growing economy, which is more likely to produce goods and services that can be exported, as well as attracting higher foreign investment. By the same token, when GDP falls it is usually negative for the currency. When an economy grows people tend to spend more, which leads to inflation. The countryÂ’s central bank then has to put up interest rates to combat the inflation with the side effect of attracting more capital inflows from global investors, thus helping the local currency appreciate.
When an economy grows and GDP is rising, people tend to spend more which leads to inflation. The countryÂ’s central bank then has to put up interest rates to combat the inflation. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold versus placing the money in a cash deposit account. Therefore, a higher GDP growth rate is usually a bearish factor for Gold price.
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