US dollar abandons monthly highs, but sticks to daily gains

The US Dollar witnessed heavy trading against its rival currencies on Thursday, and the DXY index reached monthly highs in the wake of the country’s unexpectedly strong GDP and durable goods data as well as the weekly initial jobless claims report.

The USD was kept from rising higher by declining US bond yields and hawkish bets on the Fed despite positive data. The US Dollar Index gained almost 0.3% and approached 106.90, its highest level since early October. On Thursday, it settled at 106.60.

The DXY index has increased by more than 1% since Tuesday, and the demand for the Greenback is rising faster than that of its competitors due to positive economic data. But those gains might be restricted by dovish wagers on the Fed.

The Federal Reserve’s aggressive monetary tightening is not causing any signs of weakness in the US economy, which is holding strong. This week saw reports from the US that the preliminary estimate of the Q3 Gross Domestic Product exceeded expectations, and the S&P PMIs for October came in higher than anticipated.

The US will release Personal Consumption Expenditures (PCE) data for September on Friday, which could further affect the dynamics of the Greenback’s price.


In terms of data, the economy grew at an annualised rate of 4.9%, which was higher than the 4.2% predicted, according to the Q3 GDP preliminary estimate.

Furthermore, according to the US Census Bureau, September’s durable goods orders exceeded projections. It was 4.7% MoM as opposed to the 1.5% predicted.

On the down side, weekly initial claims for unemployment benefits came in at 210,000 instead of the projected 208,000. US bond yields are declining in the interim. The longer-term 5- and 10-year rates declined towards 4.79% and 4.85%, respectively, while the 2-year rate dropped to 5.04%, which added to the USD’s losing strength.

The likelihood of a December hike of 25 basis points is still quite low, at about 20%. Furthermore, according to data from the CME Group, a pause in November is almost priced in.

Investors continue to project their expectations for the upcoming Fed decisions by awaiting Friday’s release of the Personal Consumption Expenditures data for September.

The growth rate of the quarter is extrapolated as if it were constant for the remainder of the year using annualised quarterly GDP figures. However, these can be deceptive if transient shocks affect growth in a single quarter but are unlikely to persist throughout the entire year, as was the case in 2020’s first quarter during the COVID-19 pandemic outbreak, when growth fell sharply.