The advance reading for 2Q U.S. GDP showed a 1% contraction which surpassed estimates of 1.5% but a revision of the 1Q reading to -6.4% from -5.5% showed that the recession was the deepest in 27 years. Despite the contraction slowing, the 1.2% decline in personal consumption will dim the outlook for future domestic growth. The expectations that unemployment will continue to rise should continue to weigh on consumer spending which will make sustainable growth difficult to attain.
The dollar weakened further despite a 1% contraction in the GDP and the personal spending reading of -1.2% from the US. Consumers are wary of the recession as pointed out earlier and are resorting to saving more to counter the effects of the recession as pointed out by the worse than expected reading in negative figures. The Euro and Pound moved up to 1.4257 and 1.6733 respectively on the GDP data which pointed to signs that the US economy has started to recover and given rise to further risk appetite.
With major rallies seen in the equity indices and the currency majors, there are high chances of corrections to take place as profit booking could take centre stage if the economic data coming out has little or no major effect on the markets. Investors are waiting for the rate decisions coming out this week from the ECB, BOE and the RBA which could determine the direction of the economies. All three central banks are expected to keep rates unchanged although movements could be seen in the post meeting conference as heads of banks give their statements on the current economic situations especially on stimulus packages.
Today the most important news will be the Retail sales data due from Germany and the manufacturing data from Germany, Euro Zone and the UK. Among all, the ISM manufacturing data from the US could move the markets most where a positive data could see the dollar weakening further against the majors.