The US dollar held onto gains today following upbeat US third quarter growth numbers. The advance reading of GDP rose at an annual rate of 3.5% between July and September, which beat forecasts by 0.5%. The main driver behind expansion in Q3 was a jump in military spending, (the highest in 5 years) and solid gains in business investment and export sales.
Today’s data follow a 4.6% rebound in Q2 GDP but despite the Q3 figure being lower, economists believe the economy is maintaining momentum. Meanwhile, the general outlook for the US economy is upbeat following yesterday’s FOMC statement which showed the Fed adopted a slightly more hawkish tone on monetary policy.
Other US data today showed initial jobless claims rose slightly last week but remain near a 14-year low and more importantly held below 300,000 for a 7th straight week, which is indicative of very strong labor market conditions. The Labor Department reported initial claims of 287,000 versus the prior week’s revised count of 284,000.
The dollar traded as high as 109.34 against the yen but eased back down towards 108.82 as market players digested the GDP data which beyond the headline number, some of the details showed real personal consumption expenditures were down. They only increased by 1.8% in Q3, down from the 2.5% increase last quarter. This took some shine off the dollar.
Meanwhile the euro remained weak today but just above the key technical level of 1.2600. Disappointing German inflation data weighed. Annual HICP inflation (harmonized) fell to 0.7% in October, its lowest reading since May, underlining concerns over the risk of deflation in the euro area. The figure undershot forecasts for a reading of 0.9%.