NEW YORK: The dollar gained against peers including the euro and yen on Thursday on news that the US economy grew faster than previously thought in the second quarter, which would likely restrain the future interest rate cuts by the Federal Reserve.
The Commerce Department reported that US gross domestic product rose by an upwardly revised rate of 3.8 percent from April through June, higher than 3.3 percent initially reported. Economists polled by Reuters did not expect the rate to be revised.
The dollar strengthened 0.33 percent to 149.39 against the Japanese yen, rising to its highest level since August 1. The euro hit a two-week low against the dollar, last trading down 0.39 percent at USD1.1691.
“I think everyone seems to have a bit of dollar shorts, and at least anecdotally, it added up to more than what the market thought,” said Steve Englander, head of Global G10 FX Research and North America Macro Strategy at Standard Chartered Bank NY Branch. “A year from now, our forecast for where interest rates are going to be is above the market because we think and recent data is showing that there’s this real slip between the labor market softness and GDP and output numbers, which are in general bigger.” The dollar index, measuring the US currency against six peers, rose 0.52 percent to 98.34, hovering near a two-week high hit on Wednesday. The dollar has been slightly higher since the Fed lowered interest rates last week, as expected.
Traders are anticipating at least two rate cuts in this year’s remaining two Fed meetings, although comments from policymakers including Chair Jerome Powell indicate a lot will depend on upcoming economic data.
On Wall Street, all three indexes including the S&P 500, Dow Jones Industrial Average and Nasdaq Composite Index fell. U.S Treasury yields rose across the board.
For benchmark US 10-year notes, the yield rose 3.6 basis points to 4.183 percent. The 2-year note yield, which typically moves in step with interest rate expectations for the Fed, rose 5.7 basis points.
“Genuinely there’s an issue for the Fed about how fast you want to cut. Normally, when the labor market is this weak you would say it’s all demand,” Englander said.
“And if demand is faltering, it calls for a rate cut. In this case, they have to keep in mind the possibility that there’s a positive supply shock, which would mean that they should be careful about cutting.”
More Fed officials continued commenting on Thursday about last week’s decision to cut rates. Federal Reserve Bank of Kansas City President Jeffrey Schmid said the cut was needed to help ensure that the job market remains in a good place.
Federal Reserve Bank of Chicago President Austan Goolsbee said he was not eager to do a lot more policy easing while inflation is above target and moving the wrong way.
The dollar extended gains against the Swiss franc after the US GDP news and as the Swiss National Bank kept key interest rates at zero, as expected. The SNB also warned that US President Donald Trump’s tariffs had dimmed the Swiss economic outlook going into 2026.
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