US dollar, oil prices, tech stocks rise as GDP rises 3% in Q2; bonds and yen slip as speculation of significant rate cuts fades – Invesco CurrencyShares Japanese Yen Trust (ARCA:FXY), SPDR Gold Trust (ARCA:GLD)

The US dollar, oil prices and technology stocks rose sharply on Thursday after the forecast for real gross domestic product growth in the second quarter was revised upwards to 3%, indicating continued strength in the US economy.

More defensive assets such as bonds and the Japanese yen fell as expectations for rate cuts became somewhat more subdued.

What happened: The US economy remains robust, posting a respectable 3% real GDP growth in the second quarter. Thursday's original estimate was 2.8%. This is more than double the 1.4% growth in the first quarter and marks the eighth consecutive quarter of growth for the US economy.

The rebound was mainly due to consumer spending, which rose 2.9 percent in the second quarter. This is an upward revision from the previously reported 2.3 percent and significantly more than the 1.5 percent growth in the first quarter. Corporate profits also showed an improvement, falling 2.7 percent in the first quarter but rising 1.7 percent in the second quarter.

There were also positive signs in terms of price pressure, as prices for personal consumption expenditure were revised downwards in the second estimate.

The revised data also included downward revisions to non-private fixed investment (4.6% versus 5.2% previously reported), exports (1.6% versus 2%), private inventory investment (7.5% versus 8.4%), federal (3.3% versus 3.9%) and local government spending (2.3% versus 2.6%), and private fixed investment (down 2% versus down 1.4%). Imports were revised slightly upward (7% versus 6.9%).

Why it is important: The resilience of the US economy is reducing recession risks that emerged earlier this month following a weaker-than-expected July employment report.

For markets that are sensitive to domestic economic developments, such as small and medium-cap stocks, a healthy economy is a sign of improved risk appetite among investors.

The simultaneous decline in price pressures is strengthening the Federal Reserve's confidence that inflation is approaching its two percent target, paving the way for a rate cut in September.

Strong economic activity is also a factor that could deter the Fed from making large or rapid interest rate cuts to prevent a resurgence of inflationary pressures.

The market-implied odds of a 50 basis point rate cut in September fell slightly from 38% a day ago to 32.5%, CME Group's FedWatch data.

Market reactions:

• US Dollars: The US dollar index, tracked by the Invesco DB USD Index Bullish Fund ETF UUPrecovered 0.4% in response to GDP data, after a 0.5% gain on Wednesday.
• Bonds: US Treasury yields rose slightly, leading to iShares 20+ Years Treasury Bond ETF TLT decrease by 0.5%.
• Japanese Yen: The USD-JPY pair rose 0.7% to 145.35 on Thursday. Invesco CurrencyShares Japanese Yen Trust FXY fell by 0.7%.
• Shares: The S&P 500, tracked by the SPDR S&P 500 ETF Trust SPY rose 0.3%. The technology-heavy Nasdaq 100, tracked by the Invesco QQQ Trust, Series 1 QQQrose by 0.8%, despite a decline of 2.2% Nvidia Corp. NVDA.
• Sector performance: The Technology Selection Sector SPDR Fund XLK led the sector gains with an increase of 0.9%.
• Oil: The United States Oil Fund USO rose 2.2%, fully reversing Wednesday's losses.
• Gold: The SPDR Gold Trust GLD rose 0.4% to $2,515 an ounce.

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Illustration created using artificial intelligence via MidJourney.