US GDP growth in Q2 came in at 1.3%, which was much lower than expected, and to add to the gloom, Q1 figures were revised sharply downward from 1.9% to 0.4%. I suspect that much of this anaemic growth can be attributed to fresh borrowing and this does not bode well for the near-term.
Underlying economic strength is much weaker than expected and now the Fed is ending its QE2 and the US government is about to go into some degree of austerity mode. The US economy will start to contract; underlying weakness added to reduced stimuli and spending does not add up to GDP growth. This in turn will be bad for FX risk trades and of course for the USD. Any USD bounce brought about by a debt-ceiling deal is likely to be temporary.
Non farm payroll figures due this Friday will give us a bit more insight into how the economy is performing.
