The Fed's hawkish sentiment still carried over into the trading session tonight. The increase in US GDP further adds to the strengthening catalyst for the Dollar.
Following the strengthening that was formed after the FOMC announcement early this morning, the US Dollar added to its gains thanks to the release of US GDP data tonight (27/January). The US Dollar Index rose 0.67% to 97.18, its highest since July 2020.
US economic growth regained momentum in the last quarter of 2021. The US Department of Commerce reported that Advance GDP jumped from 2.3% to 6.9% from the previous quarter. The gain was higher than the 5.3% expectation.
"We're getting a strong boost from inventory accumulation, and that's driving growth," said Sung Won Sohn, a finance expert at Loyola Marymount University in Los Angeles. "We've spent so much money in the past. The Biden administration has overstimulated the economy and the Fed is supporting that effort."
The Market Is More Optimistic With The Fed Tightening
The day after the announcement of the Fed's readiness to raise interest rates in March, the market boosted their expectations of the frequency of Fed Rate hikes this year. After estimating four times, market participants now expect a five-fold increase in the Rate.
Jerome Powell did signal that an increase in interest rates is needed by the US economy at this time, but he also emphasized that the Fed has not actually made any decisions regarding how many basis points of increase are needed. The Fed chairman only said that the central bank would not rule out discussions on this matter.
"Although the market was anticipating a rate hike, many people assumed that the Fed would be more sensitive to equity markets, but it wasn't," said Jane Foley, an analyst at Rabobank. stimulus withdrawal."
Foley added that the shock the Dollar had at the start of the month was too long and made the Greenback more sensitive to the latest hawkish signals from the Fed.
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