# Dollar pares gains as US growth contracts for second quarter
Author:  Pal Sinha, Barnali 
Author URL: https://financedigest.com/author/pal-sinha-barnali
Published: 2022-07-28
Category: NEWS
Category URL: https://financedigest.com/category/news
Meta Title: US Economy Contracts, Dollar Drops: Fed Rates Speculation
Meta Description: Get the latest on the US economy contraction in Q2 and its impact on the dollar in market speculations. Stay informed with Reuters.
URL: https://financedigest.com/dollar-pares-gains-as-us-growth-contracts-for-second-quarterhtml

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By Karen Brettell

NEW YORK (Reuters) – The dollar pared gains on Thursday after data showed that the U.S. economy [contracted again in the second quarter](https://www.financedigest.com/german-gdp-contracted-by-0-4-in-the-fourth-quarter.html "German GDP contracted by 0.4% in the fourth quarter"), fueling speculation that the Federal Reserve will not raise rates as high as previously expected.

Gross domestic product fell at a 0.9% [annualized rate](https://www.financedigest.com/aerospace-bearings-market-to-register-stellar-compound-annual-growth-rate-through-2026.html "Aerospace Bearings Market to Register Stellar Compound Annual Growth Rate Through 2026") last quarter, the Commerce Department said in its advance estimate of GDP on Thursday. Economists polled by Reuters had forecast [GDP rebounding at a 0.5% rate](https://www.financedigest.com/hopes-of-slowdown-in-rate-hikes-bolster-shares-ahead-of-u-s-gdp.html "Hopes of slowdown in rate hikes bolster shares ahead of U.S. GDP").

The second straight quarterly [decline in GDP meets the standard definition of a recession](https://www.financedigest.com/decline-in-german-services-sector-eases-raising-hopes-for-milder-recession-pmi.html "Decline in German services sector eases, raising hopes for milder recession -PMI"). It comes as the [Fed aggressively hikes](https://www.financedigest.com/asian-shares-gain-as-fears-about-rapid-fed-hikes-bank-crisis-fade.html "Asian shares gain as fears about rapid Fed hikes, bank crisis fade") rates in an attempt to choke off soaring inflation.

For now the market is running with the idea that [slowing growth](https://www.financedigest.com/uk-recruiters-slow-pace-of-pay-growth-in-march-rec-survey-shows.html "UK recruiters slow pace of pay growth in March, REC survey shows") will cause the Fed to blink and that we’re entering a recession,”” said Mazen Issa, senior FX strategist at TD Securities in New York.

However, “the challenge here is that in order to get a weak [dollar you need a strong euro](https://www.financedigest.com/pound-hits-10-month-peak-euro-up-as-dollar-under-pressure.html "Pound hits 10-month peak, euro up as dollar under pressure") and that is not going to happen given the headwinds facing Europe.

The greenback had dipped on Wednesday after the U.S. [central bank](https://www.financedigest.com/dollar-skulks-at-eight-month-low-central-bank-meetings-in-focus.html "Dollar skulks at eight-month low, central bank meetings in focus") raised interest rates by 75 basis points, as was widely anticipated, while comments from Fed Chair Jerome Powell spurred hopes for a slower hiking path.

It bounced back earlier on Thursday, however, as [investors continued to digest Powell’s](https://www.financedigest.com/investors-eye-lower-wall-street-on-powell-nerves.html "Investors eye lower Wall Street on Powell nerves") comments.

Yesterday’s long-squeeze is not a sign of a longer-lasting [soft period for the dollar](https://www.financedigest.com/dollar-skids-after-soft-u-s-economic-data-impact-of-opec-cuts-fades.html "Dollar skids after soft U.S. economic data; impact of OPEC+ cuts fades"), in our view. Upside risks for the greenback [remain material due to an unstable global](https://www.financedigest.com/global-food-makers-retailers-remain-in-crisis-mode.html "Global food makers, retailers remain in crisis mode") risk environment and still broadly supportive Fed stance,” ING FX strategists Francesco Pesole and Frantisek Taborsky said in a note on Thursday.

The [dollar index against a basket of major currencies](https://www.financedigest.com/u-s-dollar-advances-vs-major-currencies-as-risk-appetite-fades.html "U.S. dollar advances vs major currencies as risk appetite fades") was last at 106.45, up 0.09% on the day, after earlier reaching 106.98. It has fallen from 109.29 on July 14, which was the highest since September 2002.

The [dollar dropped sharply against the Japanese currency to 134.57 yen](https://www.financedigest.com/yen-sinks-as-rates-outlook-diverges-nz-dollar-tumbles.html "Yen sinks as rates outlook diverges; NZ dollar tumbles"), down 1.51% on the day, as traders pared back how high the Fed will ultimately hike rates.

Essentially dollar/yen is a reflection of the Fed [terminal rate](https://www.financedigest.com/dollar-jumps-as-powell-flags-higher-terminal-rate.html "Dollar jumps as Powell flags higher terminal rate") and that is being revised lower by markets at the moment,” said TD’s Issa.

Fed funds futures traders are now pricing for the [Fed’s benchmark rate](https://www.financedigest.com/wage-data-dents-dollar-recovery-before-fed-rate-decision.html "Wage data dents dollar recovery before Fed rate decision") to peak at 3.24% in December, compared with previous expectations of a top of 3.39% in February, which was priced in on Monday.

The [euro fell 0.37% to $1.0161 It traded as low](https://www.financedigest.com/euro-rises-after-spanish-cpi-dollar-slips-towards-8-mth-low.html "Euro rises after Spanish CPI, dollar slips towards 8-mth low") as $0.9952 on July 14, the weakest since December 2002.

The single currency has been hurt by concerns about the region’s [energy crisis](https://www.financedigest.com/europes-energy-crisis-and-the-nuclear-path-out.html "Europe’s energy crisis and the nuclear path out").

Problems for other currencies just keep on growing, most notably in Europe, where rising fears over gas and energy shortages are continuing to weigh on the euro and threatening the ability of the (European Central Bank) to tighten policy as much as it might otherwise wish to do so,” said Stuart Cole, chief macro strategist at Equiti [Capital in London](https://www.financedigest.com/london-the-capital-of-cyber-crime-in-the-uk.html "London: the capital of cyber crime in the UK").

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Currency bid prices at 9:32AM (1332 GMT)

Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid

Previous Change

Session

Dollar index 106.4500 106.3600 +0.09% 11.276% +106.9800 +106.0500

Euro/Dollar $1.0161 $1.0199 -0.37% -10.62% +$1.0234 +$1.0114

Dollar/Yen 134.5650 136.6100 -1.51% +16.88% +136.5700 +134.3500

Euro/Yen 136.74 139.26 -1.81% +4.94% +139.3300 +136.6600

Dollar/Swiss 0.9568 0.9596 -0.29% +4.90% +0.9631 +0.9561

Sterling/Dollar $1.2150 $1.2158 -0.03% -10.13% +$1.2191 +$1.2105

Dollar/Canadian 1.2818 1.2824 -0.08% +1.35% +1.2839 +1.2795

Aussie/Dollar $0.6989 $0.6994 -0.06% -3.84% +$0.7013 +$0.6962

Euro/Swiss 0.9723 0.9786 -0.64% -6.23% +0.9805 +0.9720

Euro/Sterling 0.8360 0.8390 -0.36% -0.48% +0.8403 +0.8346

NZ $0.6284 $0.6261 +0.42% -8.15% +$0.6292 +$0.6252

Dollar/Dollar

Dollar/Norway 9.7430 9.7335 +0.14% +10.65% +9.7795 +9.6830

Euro/Norway 9.9053 9.9353 -0.30% -1.06% +9.9661 +9.8718

Dollar/Sweden 10.2784 10.2070 +0.22% +13.98% +10.3289 +10.1937

Euro/Sweden 10.4458 10.4224 +0.22% +2.07% +10.4585 +10.4135

(Additional reporting by Saikat Chatterjee in London; Editing by Alison Williams)


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