USD Quickly Lost Ground To Major Trading Partners

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As of writing, the DXY (USD index) is trading at 93.35, down by 0.50% on Thursday trading.

GDP growth in the US may be contributing to this 4-week low in the dollar index. GDP growth missed expectations for Q3 2021, reporting in at 2.0% rather than the expected 2.7%. Q3’s GDP growth represents the lowest value reported for this data point since the US began to recover from the worst of the pandemic.

Supply constraints have been pointed out as one of the major causes for the GDP growth miss, as reported by Fannie Mae earlier in the month. Fannie Mae expects the constraints to continue for another 12 months, although weakening in intensity as time passes.

USD suffers greatest loss against the EUR

The USD has lost the most ground against the EUR in the past 24 hours. EURUSD is trading at 1.16831 at the time of writing, up by 0.72% and a one month high for the pair. The cause of the EUR’s strength: The public address by the Christine Lagarde, head of the European Central Bank (ECB), playing down any fears of inflation.

While Inflation in the Eurozone is at a 13-year high (3.4%), Lagarde and her ECB associates are not ready to drop the notion that inflation is transitory. The ECB want to see inflation above 2% over the medium term before considering rate hikes or taking a more hawkish tone.

The ECB believes that inflation in the Eurozone has been driven chiefly by supply bottlenecks and energy prices. It could be some time before investors see any change in the dovish stance of the ECB.

Supply constraints are expected to last for a great deal of time, as noted above, while energy prices are yet to show any sign of abatement. The Biden administration has asked energy producers to lift production to help drop the cost of energy. But the request is falling on deaf ears.

At the time of writing, WTI is trading at US $83.04 per barrel, while Brent is trading at US $84.39 per barrel. Both Oil instruments are trading at multi-year highs. The price of Natural Gas does swing widely day-to-day. A 7% swing either way over a day’s trading is not uncommon. Yet, Natural Gas is still trading at US $5.732/MMBtu, more than double the price at the beginning of 2021.