US GDP expected to grow at 3.2% in Q3

The US economy is expected to expand at an annualised rate of 3.2% in Q3.
The US “exceptionalism” narrative should remain unshaken.
The US Dollar keeps its multi-day recovery well in place.

The United States (US) Bureau of Economic Analysis (BEA) is set to publish its preliminary estimate of the Gross Domestic Product (GDP) for the July-September period on Thursday, with analysts expecting the data to show annualised growth at a solid 3.2%, a decent improvement from the 2.2% expansion recorded in the previous quarter.

TMGM tahlili: Moliyaviy bozor yangiliklari, iqtisodiy kalendar va bozor tahlillari

Markets brace for US growth and PCE data amid geopolitical jitters

Investors are anxious ahead of Thursday's release of the US preliminary GDP figures for the July-September period, which is generally considered the most market-moving estimate of the three issued each quarter. Beyond headline growth, the domestic calendar also includes the publication of inflation gauged by the Personal Consumption Expenditures (PCE) report, the Federal Reserve’s (Fed) preferred inflation measure.

The upcoming GDP release keeps its importance intact as market participants will look for signs of any effects from the ongoing crisis in the Middle East and tariffs. Regarding inflation, market participants also expect the impact of Trump’s tariffs and the increased volatility around energy prices to remain a key focus.

The release follows the Fed’s October 28-29 meeting, where the Committee delivered a widely anticipated “on hold” decision on the Fed Funds Target Range (FFTR).

Also included in the report is the GDP Price Index, commonly called the GDP deflator, which measures inflation across all domestically-produced goods and services, including exports but excluding imports. These data will become more prominent amid the ongoing US-Iran-Hormuz conflict and its impact on Crude Oil prices.

The Atlanta Fed’s GDPNow model, closely watched for its real-time tracking of economic activity, forecasts a 3.3% expansion in Q3 GDP as of its October 28 update (from 3.4% set on October 27).

When will the GDP print be released, and how can it affect the US Dollar Index?

The US GDP report, due at 12:30 GMT on Thursday, could prove pivotal for the US Dollar (USD) in case of a big surprise in either direction as markets remain almost exclusively focused on developments from the Middle East. Alongside the headline growth figure, markets will scrutinise updates to the GDP Price Index and the PCE, which are crucial data points that could shift expectations for the Fed rate path and the Greenback’s direction.

A stronger-than-expected GDP, or even an in-line reading, should keep the US “exceptionalism” narrative well in place, offering a tailwind for the current recovery of the buck. Inflation data, on the other hand, is expected to match the trend already seen with the release of CPI figures earlier this month.

The broader technical outlook for the US Dollar Index (DXY) remains constructive amid the ongoing recovery. The index is trading in the upper end of its 18-month range north of the 102.00 barrier. It is worth noting that the positive outlook is expected to remain unchanged while above its 200-day SMA near 99.60. Further gains from here should meet the next hurdle at the YTD ceiling at 102.94 (October 14).

Downside levels emerge at the weekly trough at 101.44 (October 22), seconded by the provisional 100-day and 55-day SMAs at 100.62 and 100.57, respectively. South from here comes the more relevant 200-day SMA at 99.60, which precedes the September valley at 98.59 (September 9).

Momentum indicators lean bullish, with the Relative Strength Index (RSI) near the 61 level and the Average Directional Index (ADX) flirting with 36, suggesting growing strength behind the recent upward move.

US Dollar FAQs

What is the US Dollar?

The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022. Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.

How do the decisions of the Federal Reserve impact the US Dollar?

The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.

What is Quantitative Easing and how does it influence the US Dollar?

In extreme situations, the Federal Reserve can also print more Dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.

What is Quantitative Tightening and how does it influence the US Dollar?

Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.

Economic Indicator

Gross Domestic Product Annualized

The real Gross Domestic Product (GDP) Annualized, released quarterly by the US Bureau of Economic Analysis, measures the value of the final goods and services produced in the United States in a given period of time. Changes in GDP are the most popular indicator of the nation’s overall economic health. The data is expressed at an annualized rate, which means that the rate has been adjusted to reflect the amount GDP would have changed over a year’s time, had it continued to grow at that specific rate. Generally speaking, a high reading is seen as bullish for the US Dollar (USD), while a low reading is seen as bearish.

Why it matters to traders?

The US Bureau of Economic Analysis (BEA) releases the Gross Domestic Product (GDP) growth on an annualized basis for each quarter. After publishing the first estimate, the BEA revises the data two more times, with the third release representing the final reading. Usually, the first estimate is the main market mover and a positive surprise is seen as a USD-positive development while a disappointing print is likely to weigh on the greenback. Market participants usually dismiss the second and third releases as they are generally not significant enough to meaningfully alter the growth picture.

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