Insights 
VT 
The United States’ GDP contracted at an annual rate of 0.5% in the first quarter, according to the US Bureau of Economic Analysis. This result was below the previous estimate and the expected rate of -0.2%.
The GDP decrease mainly stemmed from increased imports and reduced government spending, although this was partially countered by higher investment and consumer spending. There was a downward revision of 0.3 percentage points primarily due to lower consumer spending and exports, slightly offset by reduced import revisions.
Us Dollar Index Reaction
The US Dollar Index faced downward pressure in the American session, decreasing by 0.45% to 97.25. A higher GDP typically strengthens a nation’s currency, indicating a thriving economy and attracting foreign investment, while a decline can weaken it.
A growing GDP often leads to inflation, resulting in increased interest rates from the central bank to counteract this inflation. These higher rates tend to negatively impact gold prices, as the opportunity cost of holding gold rises compared to depositing money in an account. A higher GDP growth rate, therefore, usually has a bearish effect on gold prices.
The slowdown in the US economy was deeper than previously thought. That 0.5% contraction in GDP for the first quarter, revised down from the earlier -0.2% estimate, reflects more than just statistical noise—it indicates softness in key demand components, even as some income-side measures remain resilient. This adjustment came from softer consumer spending and weaker export activity, with a minor offset from improved import estimates. Although investment and household consumption did increase, they weren’t robust enough to neutralise the drag from falling public sector expenditure and net imports.
Currency traders responded swiftly. Over the session, the US Dollar Index fell nearly half a percent. That’s not surprising—lower GDP growth weakens the demand for currency exposure, as the narrative shifts away from expectations of tightening monetary policy. The market’s immediate repricing indicates that positioning had leaned too far into the assumption of resilience.
Rate Sensitive Commodities
Typically, when economic output expands, inflation becomes a more imminent concern. This tends to provoke action from the US Federal Reserve in the form of raised interest rates, which strengthens the dollar while applying downward pressure on commodities like gold. But when figures come in weaker than forecast—and particularly when the downward adjustment is due to consumption—it undermines those expectations. It’s not just about the headline figure, but what it implies about forward demand and pricing power.
For rate-sensitive commodities, such as gold, the implications are straightforward. Higher interest rates increase the appeal of yield-bearing assets, putting pressure on non-yielding instruments. In turn, weaker prospects of monetary tightening, whether from lower inflation expectations or faltering growth, tend to support gold prices or at least reduce headwinds facing the metal.
Since revisions to GDP are largely backward-looking, the market’s reaction will hinge more on whether this trend looks likely to persist. Price action during the coming days will show whether investors believe this slowdown remains temporary or signals a broader deceleration. Bond markets may already be tilting towards the latter, visible through the shifts in expectations for policy rate cuts.
For those of us assessing directional exposure, particular attention should be given to short-term volatility. Data releases over the next several weeks—especially those on employment, manufacturing activity, and consumer sentiment—will either entrench this cautious stance or offer room for a reassessment. Positioning through options, rather than outright directional trades, might offer greater flexibility. Spreads that protect against further declines in growth expectations could prove more effective than binary bets on policy shifts.
In tactical terms, we might consider how a softer macro outlook reduces the yield curve’s upward pressure, diminishing the relative advantage of holding the dollar. Meanwhile, should falling growth temper inflation pressures, forward projections for gold will need to be adjusted. That said, any hint of fiscal stimulus to offset this weakness would likely redirect flows towards cyclical assets.
As Powell and colleagues assess the data, their commentary will be essential in shaping expectations on future rates, but so will the broader set of indicators. We do not need to wait for policy meetings to infer sentiment shifts—the pricing in futures markets can often serve as a more timely signal.
