The final US Q2 GDP data provided significant support for the dollar. Nearly all components of the report came in "in the green"—that is, revised upward. This result added to the already optimistic tone set by recent reports and paved the way for further dollar strength. Now, the last puzzle piece for dollar bulls is the release of the core PCE index (September 26). If this release also lands in the green zone, "dovish" sentiment in the market will be greatly diminished. Even one additional rate cut this year could be called into question.
We will discuss inflation further below, but for now, let's return to the figures, which sparked a downward impulse in EUR/USD. According to the final numbers, the US economy expanded by 3.8% y/y in Q2. Initially, the Bureau of Economic Analysis (BEA) had reported 3.0% GDP growth. The second estimate was revised upward to 3.3%. The final reading not only exceeded the prior estimate but also beat most analysts' expectations. Most believed the final figure would match the second estimate (i.e., 3.3%), but it was revised up to 3.8%—the largest quarterly upgrade in recent years.
What matters is not just the fact of the upgrade, but its structure and causes. For example, consumer spending increased significantly. According to the final data, consumer spending grew by 2.5% (the initial estimate was 1.6%). Household expenditures were the main driver of the upward revision, underscoring the robustness of internal demand.
In addition, the final estimate revised up investment in intellectual property (software, R&D, entertainment content). According to the final numbers, investment in this category rose 6.7% y/y (the initial estimate was 5.2%).
Another key factor is that the BEA revised the measure of "Final Sales to Private Domestic Purchasers" upward. This indicator reflects personal consumption, private business investment, and residential investment. It's a pure measure of domestic private demand—showing how actively households and businesses are consuming and investing. In the final Q2 estimate, this was raised from 1.2% to 1.9%.
In other words, US GDP growth in Q2 was not driven solely by lower imports—although that was a factor, with imports dropping 29.3% after a sharp surge in Q1.
All in all, the report indicates that the US economy proved stronger than previously thought. The unexpectedly strong growth in consumer spending suggests a rise in consumer confidence and stable incomes. It also demonstrates that US economic growth is driven by genuine internal demand, rather than merely statistical artifacts.
These results allow the Fed to avoid rushing into rate cuts—or, rather, to avoid aggressive monetary easing. In fact, the market has already revised its forecasts for further Fed action. According to the CME FedWatch tool, the odds of a rate cut at the October meeting have dipped only slightly—from 92% to 81%. However, the chances of another 25-basis-point cut in December have dropped to 60% (down from 82% before the data release). The market is now almost certain that the Fed will maintain a wait-and-see stance in January, whereas just yesterday, the odds of a third 25-bps cut stood at 40%.
If the August core PCE index accelerates even to 3.0% from the current 2.9%, the dollar will get additional support, and EUR/USD will likely come under further pressure.
Technically, the EUR/USD chart favors short positions. On the H4 chart, the pair is located at the lower Bollinger Band and below all Bollinger Band lines, indicating a bearish "Parade of Lines" signal. On the daily chart, the pair sits between the middle and lower Bollinger Bands, below the Kijun-sen and Tenkan-sen lines but above the Kumo cloud (indicating a weakening bullish impulse). The next downside targets are 1.1630 (the upper boundary of the Kumo cloud, which aligns with the lower Bollinger Band on the daily timeframe) and 1.1600 (the lower boundary of the Kumo cloud on the same timeframe). For now, it's too early to talk about even lower levels.
