Dollar hits 5 week high despite Q4 GDP downward revision

The dollar is largely ignoring a slew of weaker than expected data releases this afternoon and continues to charge northwards, as a hawkish Powell continues to boost the buck. It was Powell’s optimism over the US economy, which was in part to responsible for the rally in the dollar, in the previous session. Yet not even a weaker than forecast barrage of economic stats could pull the dollar from its recent highs.

The dollar is largely ignoring a slew of weaker than expected data releases this afternoon and continues to charge northwards, as a hawkish Powell continues to boost the buck. It was Powell’s optimism over the US economy, which was in part to responsible for the rally in the dollar, in the previous session. 

Yet not even a weaker than forecast barrage of economic stats could pull the dollar from its recent highs.  

The US economy grew at a slight slower rate in the fourth quarter than was initially reported. The US GDP rose in Q4 at 2.5%, down from 2.6%, but in line with forecasts. 

Despite a marginal tick lower, investors found respite in the fact that consumer spending, the largest contributor to the US economy remained unrevised at 3.8%. 

Furthermore, 2.5% still represents strong, solid growth as the US finished the year. Looking ahead the impact of the tax cuts is expected to start showing through and market participants will be keen to see whether the extra cash used to drive the economy forward. 

Other data showed that core Personal Consumption Expenditure (PCE) the Fed’s preferred measure of inflation remained unrevised at 1.9%, just shy of the Fed’s 2% target.  

These two data points confirm Powell’s optimistic view on the US economy, a view which combined with his hawkish comments have led investors to believe the Fed could hike interest rates 4 times across the year. 

Pending home sales fall short 

Of the releases this afternoon, pending homes sales was the most notable disappointment. 

Pending homes sales dropped -4.7% month on month in January, down from 0.5% in December and significantly short of the 0.5% forecast. 

We know that supply is proving to be an issue at the moment, however it would appear that the increase in interest rate could also be taking its toll on the market, a problem which could be exasperated should the Fed plow ahead with 4 hikes across the year.  

Dollar to 91.00? 

The dollar is trading at a five-week high of 90.60 versus a basket of currencies. Continued strength in the dollar could see it push up towards an immediate target of 90.70, before hitting resistance at 90.88 on its way to 91.00. 

With US treasury yields trading slightly lower back below 2.9, the dollar could struggle to rally much further. On the downside support can be seen on the 4hr chart at 90.1, before extending losses to 89.9 and 89.7.

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