investingLive Americas FX news wrap 30 Jul USDJPY moves sharply lower on speculation of intervention.

This post was originally published on this site.

Thursday’s economic calendar delivered a mixed but ultimately constructive picture of the U.S. economy. Growth slowed more than expected during the second quarter, but the details beneath the headline were stronger than they first appeared. Consumer spending accelerated sharply, inflation continued to cool, and the labor market remained remarkably resilient.

Q2 GDP disappoints, but consumers keep the economy moving

The advance estimate of second-quarter GDP showed the U.S. economy grew at an annualized 1.5%, below the 2.1% consensus forecast and down from 2.1% in Q1.

However, the underlying details painted a healthier picture:

GDP (Q2): +1.5% vs. +2.1% expected
Consumer spending: +3.2% vs. +0.5% in Q1
Real final sales to private domestic purchasers: +3.9% vs. +1.7% prior
Government spending declined, weighing on overall growth.
Investment and exports slowed from the first quarter, while imports increased.

The biggest positive in the report was the sharp rebound in consumer spending, suggesting households remain willing to spend despite higher interest rates. The weakness in the headline GDP number was driven more by government spending and slower investment than by deterioration in private demand.

Inflation data moves in the right direction

Inflation remained well above the Federal Reserve’s 2% objective, but the monthly data continued to point toward gradual improvement.

June PCE Inflation

Headline PCE YoY: 3.7% (as expected), down from 4.1%
Core PCE YoY: 3.3% (as expected), down from 3.4%
Headline MoM: -0.1%
Core MoM: +0.1% vs. +0.2% expected
Services inflation excluding housing and energy slowed to just 0.1% from 0.5% previously.

While the annual inflation readings remain elevated, the monthly figures continue to moderate. If monthly core inflation can remain near 0.1%, inflation should gradually trend closer to the Fed’s target over the coming months. However, energy prices remain an important wildcard. Any sustained rise in oil prices could quickly slow or even reverse that progress.

Dallas Fed Trimmed Mean sends encouraging signal

One of the most encouraging reports of the day came from the Dallas Fed Trimmed Mean PCE, which slowed sharply to:

1.4% vs. 2.7% previously

That is the lowest reading since 2020.

Unlike traditional Core PCE, the Trimmed Mean removes the largest monthly price increases and decreases regardless of category, providing a cleaner look at underlying inflation trends.

The sharp decline suggests that beneath the headline inflation numbers, broad-based price pressures continue to ease. It is another piece of evidence supporting the view that underlying inflation is gradually moving lower, even if the official PCE measures remain above target.

Labor market remains remarkably resilient

Weekly jobless claims continued to reinforce the view that employers remain reluctant to lay off workers.

Initial Claims: 197K vs. 200K expected
Continuing Claims: 1.782M vs. 1.795M expected

Both measures came in better than expected, keeping layoffs near historically low levels.

Despite slower GDP growth, businesses continue to hold onto workers, suggesting confidence that economic activity remains healthy enough to justify maintaining payrolls.

Bottom line

Today’s data reinforced the same theme markets have been wrestling with for weeks:

Economic growth is slowing, but not collapsing.
Consumer demand remains surprisingly strong.
Inflation is moving in the right direction, albeit gradually.
The labor market continues to show impressive resilience.

Perhaps the most encouraging takeaway came from the Dallas Fed Trimmed Mean inflation measure, which suggests underlying inflation pressures are easing faster than the headline numbers indicate. That won’t cause the Federal Reserve to declare victory yet—Chair Kevin Warsh has made clear the Fed remains focused on returning inflation to its 2% target—but it does provide another reason to believe the inflation trend is improving rather than deteriorating.

Taken together, the day’s reports support a picture of an economy that is slowing toward a more sustainable pace while inflation gradually cools—a combination that markets have been hoping to see.

The USD moved sharply lower, dragged down by the USDJPY on potential intervention. The price of the USDJPY moved from 163. 30 to a low of 158.00. The low was just short of the rising 200 day MA at 157.89. The price correction off the low moved to a high of 159.88 which was just short of the 100 day MA at 160.07. Both the 100 and the 200 day MAs have now solidified themselves as key support and resistance for the pair going forward.

The USD moved lower in sympathy vs all the major currencies with declines of 1.25% vs the NZD, 1.05% vs the AUD, and 1.00% vs the CHF leading the declines.

In the US debt market, yields moved higher as traders continued to sell since the FOMC rate decision and Warsh comments.

US Treasury yields at the close:

2-year: 4.2459%, +0.99 bps
3-year: 4.2925%, +1.45 bps
5-year: 4.3873%, +3.53 bps
7-year: 4.5259%, +4.19 bps
10-year: 4.6732%, +5.12 bps
20-year: 5.2253%, +7.13 bps
30-year: 5.2145%, +7.15 bps

The move highlighted growing concern that inflation may prove more persistent than the slowdown in headline GDP alone would suggest, with the selling pressure concentrated at the long end of the Treasury curve.

US stocks soared as investors came in with strong buying

The gains helped drive the broader market higher:

Dow Jones Industrial Average: 52,213.21, +614.08 points (+1.19%)
S&P 500: 7,437.64, +121.48 points (+1.66%)
NYSE Composite: 25,122.18, +679.24 points (+2.78%)
Russell 2000: 2,946.10, +39.79 points (+1.37%)
Nasdaq 100: 28,106.35, +914.04 points (+3.36%

This article was written by Greg Michalowski at investinglive.com.