The US dollar rose on better-than-expected growth data on Tuesday but other mixed US data afterwards pared gains with downbeat housing prices and consumer confidence.
Real gross domestic product (GDP) – the value of the production of goods and services adjusted for price changes – increased at an annual rate of 3.9% in the third quarter of 2014, according to the “second” estimate released by the US Bureau of Economic Analysis. In the advance estimate, the increase in real GDP was 3.5%, so the revised figure marked some improvement. In the second quarter, real GDP increased 4.6%. However, in the second revision of the Q3 GDP, both business and consumer spending were revised higher.
Consumer spending rose at a 2.2% pace, revised up from 1.8% and was better than initially estimated. It indicates that businesses didn’t have many stockpiles laying around for too long. Meanwhile, with gasoline prices falling and the holiday shopping season approaching, the momentum in consumer spending is expected to pick up further.
Also, business spending on new buildings, machinery and research-and-development efforts grew more than initially estimated, and spending on residential building and improvements advanced for the second straight quarter after slowing late last year. Business investment growth was revised up from 5.5% to 7.1%.
The US has been experiencing one of its strongest growth phases and would likely strengthen expectations that the Fed could soon start to raise interest rates, possibly in the first half of next year.
The dollar initially was boosted against most major counterparts ate the GDP data. It rose to a high of 118.28 against the yen but gains soon faded after weak data on from the US Conference Board which showed consumer confidence unexpectedly fell in November. The index came in at 88.7, down sharply from October’s 94.1. The dollar traded as low as 117.58 on Wednesday, unable to rise higher due to a strong of weak data on jobless claims and durable goods orders. However the overall trend for the dollar is expected to remain bullish due to the growing divergence between the US economy and that of much of the rest of the world. The Eurozone economy is mostly stagnant while the world’s second largest economy – China – is also experiencing a slowdown in the rate of growth. Meanwhile, Japan’s economy has slipped into a recession in the third quarter.