A drift towards US recession doesn't have to mean weaker USD - MacQuarie

The U.S. dollar received a boost overnight with the release of stronger than expected second-quarter growth data. And, even if the U.S. economy heads towards recession that may not mean a weaker dollar, according to MacQuarie.

At 07:00 ET (11:00 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.1% higher to 101.325, after having climbed to its highest level since Aug. 22 at 101.58 on Thursday.

The recent deterioration in U.S. job-market conditions looks worrisome because so much of the recession-on/recession-off debate and so many recession indicators center around trends in the U.S. job market data, analysts at MacQuarie said, in a note dated Aug. 29. 

That's the case even though NBER "recession calls" are not so "rules-based" as to look at jobs only, but look at the economy broadly.

However, even if the U.S. drifts closer to recession, that may not mean a weaker dollar, the bank added. 

Other economies are also seeing weakness (e.g., Germany) or set to see weakness too (e.g., UK), suggesting the EUR/USD and GBP/USD are topping. 

Growth is still generally deemed to be worse in Europe and the U.K. than in the U.S. - especially in view of Germany's weak (-0.1%) Q2 GDP print.

To keep hope alive for policy easing, however, traders need to see more signs of disinflation globally.

The data hasn't disappointed in that regard, with subdued inflation prints coming from Germany and Spain, foretelling a decline in euro area CPI inflation to 2.2% year-over-year.

 

Source: Investing.com

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