U.S. economic growth forecast lifts the dollar – will NFP this week provide further support for the next rate hike?
What happened last Friday
- The EUR/USD on Friday continued its downwards trend of the last two weeks and fell by 0.8% to 1.09328.
- On a weekly basis, the world’s most popular currency pair fell by 1.7%.
What led to this situation
- The growth of the U.S. economy for Q4 2015 was reported on Friday to be actually faster than initially estimated by the government.
- The economy’s growth during the last year’s final quarter and on an annualised basis has been 1% instead of the initial calculation for 0.7%.
- Analysts’ forecasts were rather pessimistic compared to the actual report as they were anticipating the economy’s growth to be only 0.4%.
- S. retailers purchased larger quantities of stock than what was forecasted, and so the aggregate inventory volume is close to $13 billion higher.
- Because of that, some estimate that the growth level of the premier quarter of this year might be as high as 2.4%.
- But there is a group of investors who do not have the same optimistic views, and they will defend their stance by attributing the upwards revision of the growth rate to larger inventories that might act as a drag to the Q1 2016 growth rate.
- The Federal Reserve’s (Fed) Chairwoman Janet Yellen stated that there would be gradual interest rate hikes provided that the economy grows at a healthy pace.
- However its feared that the sluggish performance of global economies including China might work against the U.S. growth.
- The majority of investors will be focused on the upcoming release of the Nonfarm Payrolls (NFP) data – scheduled for release on Friday 04 March at 13:30 GMT by the U.S. Department of Labour.
- The NFP data is regarded by the Fed as one of the most important indicators of the economy’s performance and might provide an indication as to whether FOMC members will decide on an incremental interest rate increase during their 15 March meeting.