The US dollar exchange rate gained slightly in response to yesterday's US GDP report. Unfortunately, there is still uncertainty regarding the Fed's interest rate outlook.

The US Dollar weakened against most other majors at the start of the Asian session on Thursday (30/November). However, the US Dollar Index (DXY) briefly moved off its three-month low to around 103.00 following the release of US GDP data in the New York session.

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The preliminary US GDP report showed that economic growth reached 5.2% in the third quarter of 2020. The US economic performance proved to be much better than the 2.1% in the previous reporting, also superior to the consensus forecast pegged at 4.9% only.

In response to the US GDP report, the US dollar exchange rate edged higher against several major currencies. Unfortunately, uncertainty over the Fed's interest rate outlook prompted most market participants to take a wait-and-see attitude ahead of the release of Core PCE Price Index data later tonight as well as Fed Chair Jerome Powell's speech tomorrow.

Christopher Waller, one of the Fed Governors, yesterday revealed the possibility of an interest rate cut in the next few months. In fact, Waller was previously known as one of the hawkish figures.

Core PCE Price Index data is a key inflation reference for the Fed, so it could enliven speculation around interest rate cuts. Powell's speech tomorrow may also provide a more market-influencing statement than Waller's discourse.

"Given how sharply the dollar has sold off the last few weeks, it's only natural that we could be seeing a bit of profit taking," said Paresh Upadhyaya, director of fixed income and currency strategy at Amundi US in Boston. "If the Fed believes that the markets misinterpreted his comments or feel uncomfortable to the degree that financial conditions have eased, there's an opportunity with Powell to set the record straight."

Several other central bankers have come out with more hawkish views this week, supporting their respective exchange rates. Yesterday's RBNZ rate announcement pushed NZD/USD to test the 0.6200 threshold. BoE officials have also been persistent in denying speculation of a rate cut, so GBP/USD is holding in the 1.2700s. If Powell tomorrow expresses a more hawkish opinion as well, USD has the potential to rebound further.