Markets Cheer Dovish Fed, US Q2 GDP Expands 6.5%

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A sense of positivity is certainly on the air today thanks to comments from the Federal Reserve System overnight, with the US Senate voting ahead on the $ 1.2 billion infrastructure plan and strong revenues in Europe.

Shares on the continent turned green this afternoon, hitting record highs earlier in the day amid the risk sentiment. U.S. stock markets are also positively hitting new record highs as bulls are excited by Jerome Powell’s disruptive remarks and the prospects of a breakdown on the infrastructure bill.

Dollar Humiliated By Dovish Fed

“One man’s man is another man’s poison” is a proverb that comes to mind when you look at the recent sale of the dollar. While equity bulls made backlinks and carts after Jerome Powell said tax increases are “far off,” that caused a heavy blow to king-dollar. In fact, the greenback has declined against every single G10 currency today with the Dollar Index (DXY) swaying above 92.00 since writing. With Powell emphasizing that the labor market still has “some ground to cover” before the Fed begins to decline, investors are likely to pay close attention to economic data. Considering how this will lead to narrow discussions and fast-paced expectations, we could be in some rough months and increased dollar volatility.

US economy grows by 6.5% in Q2

Speaking of data, the U.S. economy grew by 6.5% year-on-year in the second quarter of 2021. This was higher than the revised rate of 6.3% seen in the first quarter but well below market expectations of 8.5% . Despite the report less than forecast, this was still the largest growth since the third quarter of 2020, when the economy revived. Details also showed that personal consumer spending grew at an annual rate of 11.8%, so the U.S. consumer seems to be very much alive and kicking.

In other data releases, U.S. initial unemployment claims fell from 24,000 to 400,000 last week as the economy continues to recover from the pandemic. With Powell’s recent comments on the job market and declining, further signs of improving jobless claims are added to the list of factors influencing empty expectations.

Currency light – EURUSD eyes 1.19

Some economic data from Europe today offered fresh air.

Eurozone economic sentiment hit its highest month in July, while unemployment in Germany remained at 5.7% in June, a tick lower than expected. This was the lowest unemployment rate of April 2020. Interestingly, it was a mixed day for the euro. Although the currency stood high against the dollar, yen and Swiss franc, it weakened against other more cyclical G10 majors. Looking at the technical picture, the weaker dollar looks to push EURUSD to 1.1900. A solid break above this level could open the door to 1.1960 and 1.2000. Alternatively, a decline to 1.1800 could signal a move back to 1.1750.

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