US GDP Contracts in Q2 2020 – What Will the USD Do in August?

FXOpen

Two important events shaped the previous trading week – the FOMC Meeting last Wednesday and the US GDP. The Gross Domestic Product (GDP) contracted by 9.5% QoQ, but the decline was not so bad when compared with other developed economies. For example, the Eurozone GDP fell by over 12%, with Spain being hit the hardest – a drop beyond 18%.

US GDP Contracts in Q2 2020 – What Will the USD Do in August?

The US dollar traded with an offered tone for the entire month of July. The EURUSD, in particular, was extraordinarily strong, reaching levels above 1.19 on the last trading day of the month. However, profit-taking towards the end of the trading month made it retrace a hundred pips into the close.

But the USD traded offered not only against the Euro but against the GBP or AUD too. Overall, July was not the best month to bid for the USD, and the FOMC Meeting did not help the dollar bulls.

The downside risks to growth are still present for the US economy and the developed economies too. An asymmetric U-shape recovery is most likely to happen, rather than a V-shape one.

Moving ahead, August may prove decisive for the USD. With the US elections coming closer by the day and the NFP on Friday, the USD may have a strong comeback.

The bid for the USD is supported by the shrinking USD liquidity seen in the system. The Treasury’s account at the Fed is growing by the day, reaching almost $2,000 trillion – money that sits and piles up instead of being deployed in the economy.

Private consumption fell in the United States in the second quarter. At the same time, the personal savings rate increased exponentially, showing households’ reluctance to spend.

While some indicators show an improvement since mid-April, the US economy still needs bot the Fed and the Congress support. A new fiscal package worth another trillion dollars may be released to help people better handling the crisis.

All in all, the USD has an important week ahead. Besides the NFP on Friday, it is the week the ISM, ADP, and a new round of initial jobless claims will be released, helping investors form a better picture of the US economy.

This article represents the opinion of the Companies operating under the FXOpen brand only. It is not to be construed as an offer, solicitation, or recommendation with respect to products and services provided by the Companies operating under the FXOpen brand, nor is it to be considered financial advice.

Latest from Financial Market News

Weekly Market Wrap With Gary Thomson: S&P500, USD, SNB, TSLA A Yen For Volatility: US Dollar Surges as Japan Ends 8 Years of Negative Rates Weekly Market Wrap With Gary Thomson: US500, USD, US Inflation, USD/JPY Australian Dollar Volatility Ends in Lull Ahead Of US Data Weekly Market Wrap With Gary Thomson: CHF, CAD, GOLD, TSLA

Latest articles

Weekly Market Wrap With Gary Thomson: NIKKEI-225, USD/JPY, GBP/USD, USD/CAD, Gold

Weekly Market Wrap With Gary Thomson: NIKKEI-225, USD/JPY, GBP/USD, USD/CAD, Gold

Get the latest scoop on the week's hottest headlines, all in one convenient video. Join Gary Thomson, the COO of  FXOpen UK, as he breaks down the most significant news reports and shares his expert insights.

  • NIKKEI-225 Analysis Indicates Possibility

Forex Analysis

Commodities and European currencies Test Key Supports

On the eve of the Easter holidays, the main currency pairs have slightly slowed down the development of the main trends and are consolidating near key ranges, the breakdown of which could provoke a change in the vectors of medium-term

Shares

Stock Market Analysis: NVDA Losing Leadership?

Since the start of the week, the S&P-500 Index (US500) is up about 0.58% while NVDA's share price is down about 3.8%. This is a worrying sign for Nvidia stock investors — could it be a sign

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 65.68% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money.