U.S. economic data released yesterday came in better than expected, with latest GDP numbers up at a 2-year high on a 3% increase. This is a fairly impressive growth rate for a major advanced economy such as the U.S.A. It has had the effect of boosting the U.S. Dollar, but not by a huge amount. The U.S. stock market did not exactly start roaring ahead either. President Trump gave a speech a few hours later on the subject of tax reform, in which he held out a desire for a much higher rate of GDP growth (which would be something the world hasn’t seen in a more developed economy for decades), as well as considerably lower and simplified taxes for individuals as well as corporations.
The U.S. Dollar therefore continues to advance, and so seems poised for a strongly bullish move if the Non-Farm Payrolls data does come in tomorrow (Friday) significantly ahead of the market’s consensus of 180,000. If yesterday’s ADP forecast number of 237,000 is exceeded, the market will be very impressed, and stocks should get a boost also. Yet I think it is significant and somewhat bearish for stocks that the data so far hasn’t really moved the major indices.
If the U.S. Dollar rises further tomorrow, it is not obvious against which currency or currencies it is likely to strengthen against the most. If forced to make a forecast now, I would pick the British Pound, for two reasons: it has looked weak for a while, and wasn’t going up much even while the U.S. Dollar was very weak. Secondly, it has been the biggest loser so far today against the greenback, except the New Zealand Dollar, which could be another alternative. On the other hand, if the Non-Farm Payrolls data underwhelms, I see long Gold as the best trade. Gold has broken up above its long-term resistant high of $1300 per ounce, and even with the new strength in the Dollar, has still not fallen back below that level, suggesting higher prices should be easily reached in a bearish U.S. Dollar scenario.