Rising US GDP has a positive effect on the dollar

The United States Gross Domestic Product has surpassed earlier set expectations, and this has, in turn, led to the soaring of USD exchange rates and cosequently the value of the dollar. The rise in GDP has seen markets experience shock as they didn’t expect the 3rd quarter readings exceed the 2.6% projected increase. The US GPD recorded a 3.0% rise to the astonishment of many. Experts term this to be the quickest growth in the country’s GDP since 2015.

Most enterprises across America had been boosting their inventories during this period. For investors, this move sets to show that a majority of businesses are projecting a significant increase in demands for various commodities. This step by American companies alone is responsible for a 0.73% increase to the country’s 3rd Quarter GDP reading.

The expenditure on new equipment by companies and the business community between the period ranging from July and September, indicated significant business investments being made. In comparison with the 2nd quarter, business investment experienced a 3.9% rise.

When it comes to exports during this period, America recorded growth that is poised at 2.3%. It should be noted that the country’s imports during the same period fell by 0.8%, this move is leading to the narrowing of the trade deficit resulting to a significant contribution to the rise of the GDP.

Following this developments, a lot of investors are gambling on the hiking of rates before 2017 comes to an end. When it comes to the Forex, the EUR USD exchange rates are currently falling. The primary driver behind this trend is the hawkish decisions by the Fed that aim to make the USD a more lucrative option for investors and traders.

Other than the fact that the Federal Reserve is stimulating investor confidence in the USD, the other reason that has led to the fall in EUR USD exchange rates is the dovish statement coming from the European Central Bank (ECB). The demand in Euros is taking a hit as a result of a move the European Central Bank to prolong the current economic stimulus program to September 2018 at the very minimum.

The move my ECB to prolonging the stimulus program has brought mixed reactions as the Hawks both within and outside the governing council are now calling for an expedited exit from the European Central Bank’s Quantitative Easing. ECB has also imposed a slash on its bond acquisition plans from €60 billion to €30 billion a month; representing a 50% reduction in future purchases.

Following the growth of the USD against the EUR, future inflation level continues to be a subject of distress for the European Central Bank. The current inflation rate is also being termed to be below the bank’s earlier projections.

Even though the EUR had slightly regained its composure against the USD, the American rise in GDP is something that will in the foreseeable future see the USD become the preferred investor currency option.