The U.S. economy is expected to have grown by 2.3% in the first three months of 2024.
First-quarter report on U.S. gross domestic product will be released Thursday at 8:30 a.m. Eastern time or 13:30 UK time. Economists estimate the economy expanded at a 2.2% to 2.3% annual pace in the first quarter of the year.
GDP has grown by at least 2% per quarter since the second half of 2022 & a seventh straight increase of 2% or more would mark the best streak in two decades, despite the Federal Reserve having raised interest rates to the highest level in 23 years.
Gross Domestic Product (GDP) is a crucial economic indicator that measures the total monetary value of all goods and services produced within a country’s borders over a specific period, usually annually or quarterly. It’s like a big picture snapshot of a country’s economic health and activity.
Now, why is GDP important, especially in the forex (foreign exchange) markets? Well, forex traders pay close attention to GDP because it provides insight into the overall strength and direction of a country’s economy. Therefore it is likely to have an effect on the direction of the US dollar & the US stock markets, perhaps even Gold & WTI Crude.
A higher than expected GDP number (above 2.3%) could lead to an increase in the value of the dollar (and vice-versa).
Here’s why:
Economic Growth: GDP growth indicates whether a country’s economy is expanding or contracting. Generally, higher GDP growth rates suggest a healthy, growing economy, which can attract foreign investment and boost confidence in the country’s currency.
Interest Rates: Central banks (The Fed) often use GDP data to make decisions about monetary policy, particularly regarding interest rates.
If GDP growth is strong, central banks may raise interest rates (or certainly in this case are more likely to delay any rate cuts, to prevent the economy from overheating and curb inflation.
Higher interest rates can make a country’s currency more attractive to investors seeking higher returns, potentially strengthening it in the forex market. How does this work?
Investors would buy the dollar in order to invest in T bills or bonds.
A country with strong GDP growth may see its currency appreciate as demand for goods and services from that country increases, leading to higher demand for its currency in the forex market.
GDP reports can also impact market sentiment and investor confidence. Positive GDP growth can bolster confidence in a country’s economy and its currency, leading to increased demand for that currency in the forex market.
Trade Balance: GDP figures often include data on exports and imports, which can affect a country’s trade balance. Forex traders pay attention to trade balance data because it reflects the relative strength of a country’s exports versus imports, which can impact its currency’s value.
