Dollar tumbles after weak US GDP data

The US economy had its worst performance in two years according to GDP data released on Thursday that showed a mere 0.5% growth rate (seasonally adjusted annual rate) in the first quarter. Economists had forecast the economy expanding at a 0.7 percent rate in the first quarter. The economy grew at a 1.4 percent pace in the fourth quarter.

This means that the US economy weakened from 1.4% in the fourth quarter to 0.5%, according to the first ‘advance’ estimate of official data from the Commerce Department. That means the economy grew by just 0.1% between the fourth and first quarters, indicating that the pace of expansion almost ground to a halt. The expansion was the weakest seen for two years.

A sharp pullback in business investment and weak global demand dragged down an already-lackluster US economy. Turmoil across global financial markets in the opening weeks of the year may have restrained economic activity in the US, with conditions improving somewhat after the Federal Reserve scaled back its expectations for rate increases and commodity prices began stabilizing.

The Fed hasn’t budged on interest rates since December, when it raised its benchmark for the first time in nearly a decade. Fed officials initially expected to raise interest rates by a full percentage point this year, but in March downgraded their expectation to just half a percentage point amid the global economic turbulence.

After its latest meeting concluded Wednesday, the central bank highlighted the domestic economy’s mixed signals and remained ambiguous about whether it would move its rate target from a range of 0.25% to 0.5% in June.

Despite the cause for concern, the outlook isn’t entirely bleak. For example, business investment in computers, software, research and development and nonenergy structures all rose during the first quarter.

The US dollar weakened in reaction to the disappointing US GDP data. Against the ye, the greenback fell bewlo the key 108 yen level.

The post Dollar tumbles after weak US GDP data appeared first on FXTM Blog.

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