Economists at Commerzbank analyze the US growth advantage and its implications for the US Dollar.

Only the US GDP seems to be back on a sustained growth path

The following picture of the Fed is emerging: ‘If the US economy were to weaken after all, it wouldn't matter much if inflation were a little higher or lower; the Fed would be inclined to cut the fed funds rate.’ Note: This is only one of the two channels through which US growth is relevant for USD exchange rates. The other is more direct: if US growth is significantly higher than growth in other developed economies over the medium to long term, then capital invested in the US will be more profitable than capital invested elsewhere. And then the currency needed to acquire that capital – the USD – will also be more valuable.

After the post-corona recovery phase, stagnation is the order of the day in most G7 economies. Only the US GDP seems to be back on a sustained growth path. This is nothing new. Japan, Italy and to some extent, France have been unable to keep up with the US for some time. However, the US has also been outperforming Germany and Canada for several years now, giving it a unique position among Western industrialized countries. The Dollar is also currently strong at the moment because the picture is once again emerging with great clarity from the latest real economic data. Conversely, the outlook for US growth – regardless of what is expected from the Fed, ECB, BoJ, etc. – is a key factor in the USD outlook