Currency Point: Is the US already in recession?

There are clear signs that the US may already be in a recession. The final reading of the first quarter’s GDP came in at -1.6 per cent. That was coupled with the release of the Atlanta Fed’s GDPNow release suggesting the US’ second quarter GDP is at -2.1 per cent.

GDPNow has a habit of being within a whisker of the final figure and thus we should take it at its word. That being, the US is in recession.

This could explain why the ferocity at which bind markets have been pricing in hikes has all of a sudden eased – dramatically.

The US 2yr bond lost 22 basis points last week and is now 60 basis points from its July peak at 2.84 per cent. The US 10 yr lost 24 basis points last week and is off 59 basis points from its peak of 3.48 per cent. The curve is also flattening.

Then there is US data which is also showing signs of rapid decline the ISM manufacturing survey fell to 53.0 from 56.1 which is a two-year low more importantly new orders fell into contraction at 49.2 from 55.9 and employment contracted further at 47.3. And although pricing eased its still massively elevated at 78.5.

Thing is the USD remains strong against peers as the issues in the US are comparably not as bad as what is being seen in the UK and Europe.

This can explain why DXY continues to power on. EUR/USD hit $1.0366 at the end of last week before recovering somewhat to $1.0425. Then there is the collapsing GBP. GBP/USD hit $1.197 last week and although it recovered the $1.20 handle the issue facing the UK are immense. The GBP is suffering on all fronts not just in the pair.

USD/JPY dropped back from its decades high on the falls in real yields to ¥135.25. AUD/USD hit a 2 year low of  $0.6764 before recouping somewhat to $0.6815 the AUD is the weakest currency in the G10 over the past week and that trend hasn’t reversed to start the new week.

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Source - database | Page ID - 21543

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