Dollar domination, baby! Thanks to the impressive U.S. preliminary GDP reading for Q2 2015, the Greenback managed to bring sexy back in the forex arena. But will the gains last? Let’s take a closer look at these takeaways from the GDP report to find out.
1. Large upward revision
First things first, the latest report showed a significant upgrade from the initially reported 2.3% growth to a jaw-dropping 3.7% expansion. That’s also way better than analysts’ projections of an upgrade to 3.2% growth!
A closer look at the components of the GDP report reveals that the upward revision was spurred by stronger than expected readings for business investment, comprising improved data on construction, research and development, and inventories.
2. Economy kept gaining momentum
In addition, most of the upgrades were made for July data, suggesting that the U.S. economy has gained momentum from its lackluster kickoff in 2015 all the way up to the middle of the year.
For most forex analysts, this confirms that the slowdown seen in the first quarter of the year was simply transitory as Fed officials mentioned. After all, the U.S. had to deal with harsh weather conditions and a slump in oil prices and other energy-related costs back then.
3. Rising stockpiles = Unsustainable growth
On a less upbeat note, economists also highlighted the surge in stockpiles for the second quarter, as this reveals that businesses may have stepped up production but consumption has been unable to keep up. This also suggests that companies may have to take it easy in the next few months and wait for demand to pick up before replenishing inventories.
Stockpiles climbed at an annualized pace of $121.1 billion, up from the initially estimated $110 billion figure. This comes after the first quarter’s $112.8 billion increase and marks the biggest back-to-back gains in inventories since 1947.
4. Still not good enough for a liftoff?
While the positive GDP revisions allowed the U.S. dollar to regain ground against its forex rivals, analysts say that the backwards-looking data ain’t really enough to bring September rate hike expectations back to the table. Most market watchers are already zooming in on how the recent stock market turmoil weighed on business and consumer confidence, casting doubts on whether or not Uncle Sam can sustain the strong performance in the past quarter.
The silver lining for dollar bulls, however, is that this upbeat growth report seems to have restored the Greenback’s safe-haven appeal. Come to think of it, the U.S. economy is still faring much better compared to the rest of its peers in the developed world, which could be a good enough reason for forex traders to favor the U.S. dollar even in times of market trouble.