The US Economy and the USD

[Inspired]

Hi all,

When the better than expected US GDP figure (+3.5%) was released last Thursday, this caused the dollar to weaken (surprisingly) and commodities to rally. Yet when the UK released it’s weaker than expected GDP figure (-0.4%), we saw the sterling weaken – perhaps on expectations that the Band of England would extend its quantitative easing policy and interest rates would continue to remain low for the foreseeable future.

Why did the dollar weaken on good news when the sterling declined on bad news? The positive relationship of Economic growth and a stronger currency doesn’t seem to be quite working for some reason?

 

[spinola]

Well have you googled planning for life without the US Dollar ? And countries prepping for a new world currency reserve and a sorts of Land for debt swap as the US debt mountain ,including derivatives , heads towards 600 Trillion owed ?

 

[GladiatorX]

If you actually studied the GDP details rather than just looking at the numbers; It wasn't actually particular 'surprising' that the market didn't react positively - The bigger players don't just take the numbers 'Better than analysts' and BUY - They actually look at the GDP in more detail than that.

For a start; Private businesses decreased their investories by 130.8 billion in Q3 (Sourced from inforsys) thus adding 0.94% to GDP (Cost-cutting, not returns); Similar to earnings, which seemed positive, in fact it wasn't increased sales that returned good figures - It was cost-cutting... Which just means that the consumer isn't buying and in response companies are reducing inventories and increasing there earnings simply by reducing productivity (Thus overall slowing POTENTIAL growth).

Investories growth is therefore increasing (although still declining) but this will slowdown as contraction of consumer spending continues (Especially at Xmas - where the Q4 usually performs)

Sales in the US have been crappio...

Even the increase in residential investments will be short-lived when in November, the incentive leaves ($8,000 credit)

US consumers will drive the economy and therefore markets and right now; they aren't spending; despite the pretty 'earnings' and gdp numbers. Disposable personal income has significantly decreased, savings accounts growth is occuring rather than money going into the economy, unemployment is still rising, wages and salaries are declining, unemployment benefits is rising.

The question is; Is the GROWTH sustainable... Or propped up ?
Looks unsustainable and true GDP growth will occur when the returns include real spending and company sales growth.

You've also got to remember; forex is all about COMPARISON and looking at the inter-market relationships...
GDP was low in UK (against high expected GDP In the US) and we had a fall to 'fair value'... US GDP was then slightly better than expected; on reasons that weren't particular positive... The market had already incorporated that in comparison, the GDP was crapper; but they are still both crap. Always study context; don't apply a cheap template to every situation - Look and study market context before making decisions.

 

[Inspired]

If you actually studied the GDP details rather than just looking at the numbers; It wasn't actually particular 'surprising' that the market didn't react positively - The bigger players don't just take the numbers 'Better than analysts' and BUY - They actually look at the GDP in more detail than that.

For a start; Private businesses decreased their investories by 130.8 billion in Q3 (Sourced from inforsys) thus adding 0.94% to GDP (Cost-cutting, not returns); Similar to earnings, which seemed positive, in fact it wasn't increased sales that returned good figures - It was cost-cutting... Which just means that the consumer isn't buying and in response companies are reducing inventories and increasing there earnings simply by reducing productivity (Thus overall slowing POTENTIAL growth).

Investories growth is therefore increasing (although still declining) but this will slowdown as contraction of consumer spending continues (Especially at Xmas - where the Q4 usually performs)

Sales in the US have been crappio...

Even the increase in residential investments will be short-lived when in November, the incentive leaves ($8,000 credit)

US consumers will drive the economy and therefore markets and right now; they aren't spending; despite the pretty 'earnings' and gdp numbers. Disposable personal income has significantly decreased, savings accounts growth is occuring rather than money going into the economy, unemployment is still rising, wages and salaries are declining, unemployment benefits is rising.

The question is; Is the GROWTH sustainable... Or propped up ?
Looks unsustainable and true GDP growth will occur when the returns include real spending and company sales growth.

You've also got to remember; forex is all about COMPARISON and looking at the inter-market relationships...
GDP was low in UK (against high expected GDP In the US) and we had a fall to 'fair value'... US GDP was then slightly better than expected; on reasons that weren't particular positive... The market had already incorporated that in comparison, the GDP was crapper; but they are still both crap. Always study context; don't apply a cheap template to every situation - Look and study market context before making decisions.

So what you’re basically saying is that the GDP details did cause the dollar to slide?

The rest of what you’ve said (and what spinola mentioned) would obviously cause the dollar to weaken in the long term, but I was wondering why there was a sudden decline in the dollar on Thursday after the GDP was released? You’re saying it was actually due to the poor GDP details, even though the overall figure of 3.5% was better than forecasts?

Cheers.