GDP Beats Forecasts

The US Dollar is pushing higher on Friday following yet a further set of positive data yesterday. Advance Q4 GDP was seen at 3.3% vs 2% expected. While down from the prior quarter’s 4.9%, the reading was far stronger than expected and shows the US economy is holding up a lot better than many thought it would. This data comes on the back of a set of stronger-than-forecast PMI readings a day earlier which saw the manufacturing PMI moving back into positive territory of the first time in several months.

US Data Stays Strong

The recent uptick in US data, accompanied by a more hawkish tone to recent Fed commentary, has seen the market scaling back its near-term Fed rate-cut expectations. Pricing for a March hike has now fallen below 50% from around 70% at the start of the year, reflecting this shift. While US data remains strong, and particularly while inflation remains elevated, near-term rate-cut expectations are likely to remain subdued, keeping USD supported.

FOMC in Focus

Looking ahead to next week’s FOMC, we can expect the Fed to add greater clarity on this, pushing back against those calling for imminent rate-cuts. The extent to which the Fed downplays near-term rate-cut prospects will determine the scale of the move we see in USD but for now it looks like there are bullish USD risks into the meeting.

Technical Views

DXY

For now, the rally in the index remains capped by the 103.48 level. With momentum studies weakening we might see some corrective action. However, while the breakout above the channel holds, the focus remains on a further push higher and a test of the 104.95 level next.