Some of the other US economic data released today was somewhat disappointing, but the market was focused on the positive surprise in the US GDP data.

The US economy grew faster than expected in the fourth quarter of 2020. The latest data strengthened the US dollar's position in major pairs and lifted the US Dollar Index (DXY) to around 103.55 midway through the New York session on Thursday (25/January).

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The preliminary US Gross Domestic Product (GDP) report recorded 3.3% (quarter-over-quarter) growth in the fourth quarter of 2020. The performance was weaker than the 4.9% increase in the previous quarter but much higher than the consensus estimate pegged at 2.0%.

Several other US economic data released today were disappointing, including the Durable Goods Orders and Weekly Jobless Claims data. However, market participants focused on the positive surprise of the US GDP data.

The positive reaction extended to a wide range of markets. The Dow Jones and S&P 500 indices edged higher. The US dollar exchange rate strengthened. Expectations of a Fed rate cut also retreated.

Most market participants believe the Fed will start cutting interest rates in May. This scenario has a 90% chance. Only a less than 50% chance remains for expectations of a rate cut starting in March.

"It's entirely appropriate that a year that defies expectations would show growth that exceeds expectations (as well)," said Brian Jacobsen, chief economist at Annex Wealth Management. "The problem for the market is that the Fed doesn't have to be in a hurry to cut. Rather than cutting sooner and faster, the Fed can cut later and slower."

The US Dollar is outperforming against most major currency pairs at the time of writing. EUR/USD slipped around 0.5% to 1.0830s despite the ECB boss maintaining a high interest rate environment. GBP/USD slipped around 0.2%. AUD/USD and NZD/USD's rebound attempts were also thwarted. Meanwhile, USD/JPY stabilized at around 147.60s after slumping since late last month.