Dollar Could Lower on Threats of a New Recession

February 05,2013

Some data suggests that the United could be on the verge of a new recession. Currency traders should follow economic data carefully in the coming months.

The United States Department of Commerce reported that GDP contracted in the fourth quarter for the first time in nearly four years. This news has led to concerns that the United States could be on the brink of a new recession. The dollar subsequently fell to a 14 month low against the euro. The dollar also fell two days later on an announcement that U.S. employers created fewer jobs than forecast in January.

Most economists feel that the economic recovery will still continue over the next year, although the GDP report suggests it is weaker than previously believed. However, there are some indications that the United States may be teetering on the brink of a new recession.

Forex investors should look for additional data that hints at the future of the United States economy. The dollar will almost certainly drop if other data shows that a recession is inevitable. The most telling information will be the GDP data for the first quarter of 2013, which will be reported in March. However, Forex traders who wish to short the dollar or long the euro will need to look at other economic data to predict the outcome of next month's GDP report.

Kalen Smith, a partner at Trade Forex Beginner, said that all investors will need to watch the market for new developments in the coming months. œSome evidence indicates that the United States may be on the brink of a new recession, Smith said. œThe unexpected contraction of GDP in the fourth quarter may not be the biggest concern. However, weaker manufacturing activities suggest that inventory growth and durable goods orders won't be sustainable. Private employers are still creating a decent number of jobs, but nobody can predict whether that growth is sustainable. All traders should monitor these reports in the coming months.

Important data that forex traders should monitor in the coming months includes:

Monthly consumer confidence reports

February's jobs report

Monthly retail sales

Business investments and inventory spending

While many economists feel that the economy will remain strong, their optimism is starting to wane after recent economic data has been released. Some economic data remains strong, but there are some fears looming over the horizon. Consumer confidence fell to a 12 month low in December. Most of these concerns may have been over fears of the fiscal cliff, but the recent GDP report may not have been very encouraging to them.

The largest threat to the economy is a series of austerity measures that are due to kick in March. Those spending cuts threaten an already anemic economic recovery. These fears could be indications that the dollar will drop further in the near future. Diligent currency traders will monitor these variables and invest accordingly.

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