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USD ascendancy: Unpacking strong U.S. economy and EUR/USD implications, January 28, 2024

USD ascendancy: strong U.S. economy and EUR/USD implications

In an unexpected turn of events last Thursday, the economic landscape witnessed remarkably strong indicators pertaining to the American Gross Domestic Product (GDP) for the final quarter of 2023. The team of economists at Commerzbank engaged in a meticulous analysis of these figures, delving into the nuanced implications for the trajectory of the US dollar.

Broadly speaking, the experts from the bank underscored the discernible and growing economic advantage that the United States holds over the Eurozone. These divergences in economic performance are expected to translate into varying paces of interest rate adjustments, consequently strengthening the dollar's position in comparison to the euro.

The detailed examination of the data underscores the resilience of the United States economy, with a commendable annual growth rate of 3.3%, factoring in both price and seasonal adjustments.

This impressive pace of economic expansion is particularly noteworthy in the context of prevailing global challenges and the fluidity of economic conditions. A closer scrutiny of these statistics prompts economists to highlight two pivotal aspects.

First and foremost, the robust state of the American economy empowers the Federal Reserve (FED) to sustain its current restrictive monetary policy for an extended period. This implies that there is no immediate necessity for an abrupt reduction in the fundamental interest rate.

Such a scenario bodes well for the dollar's exchange rate, fortifying its standing in the intricate web of global financial markets. A marked discrepancy becomes evident when juxtaposing the economic trajectories of the USA and the Eurozone.

The recent streak of underwhelming data emanating from Germany, coupled with the European Central Bank's (ECB) acknowledgment of diminishing inflationary pressures and a weakened economy, implies that the ECB may embark on a faster track of interest rate cuts compared to the Federal Reserve (FED).

Secondly, a comparative analysis of the GDP results of the United States with those of other nations reveals a stark contrast, with the American economy significantly outpacing its counterparts. While Japan's GDP remains at pre-pandemic levels, the European economy appears to be grappling with a disconcerting state of stagnation.

The dynamic growth witnessed in the USA emerges as a conspicuous anomaly when juxtaposed against other major currency areas, undeniably capturing the attention of discerning investors.

In light of these discerning facts, economists posit the possibility that the American economy may hold a structural growth advantage in the post-pandemic global landscape.

While definitive conclusions remain elusive, the consistent and widening gap between the GDP of the United States and other currency areas, favoring the dollar exchange rate, underscores the notion that the present data concerning the American GDP serves to fortify the foundational strength of the dollar. This suggests that the currency is poised not only to endure but also to exhibit resilience and stability in the face of the myriad challenges confronting the global economic arena.

eurusd daily chart, forex analysis
EUR/USD, daily chart, MetaTrader, 28.01.2024


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