US GDP expected to confirm solid economic growth in Q4 despite easing from previous quarter
- The United States Gross Domestic Product is expected to grow at an annualised rate of 2.8% in Q4 2024.
- The US economy is expected to keep growing at a healthy pace.
- The US Dollar is in recovery mode amid ruling risk aversion.
The United States (US) Bureau of Economic Analysis (BEA) is scheduled to release the preliminary estimate of the US Gross Domestic Product (GDP) for the October-December quarter on Thursday. Analysts anticipate that the report will indicate an annualised economic growth rate of 2.8%, slightly below the 3.1% posted in the third quarter of the year.
What to expect from GDP figures this time
The BEA’s preliminary GDP release is the most important for financial markets, as the figure is the ultimate indicator of US economic health. Alongside growth data, the report includes fresh Personal Consumption Expenditures (PCE) - Price Index figures, the Federal Reserve's (Fed) favourite inflation gauge.
The current release is a bit tricky, as the Fed announced its monetary policy decision to keep interest rates on hold ahead of GDP and PCE updates, and financial markets are still digesting the latest on that front.
Back in December, the Fed published its latest Summary of Economic Projections (SEP) or dot plot, which showed upward revisions in 2025 year-end growth to 2.1% from 2% and to core inflation to 2.5% from 2.1%. Generally speaking, the latest SEP suggested policymakers expected continued economic expansion and inflation to remain above their 2% goal for some more time.
Beyond the headline GDP reading, market participants anticipate the Q4 core PCE Price Index will print at 2.5%, higher than the 2.2% posted in Q3.
Other than that, the report includes the GDP Price Index, which tracks changes in the prices of goods and services produced domestically, including exports but excluding imports. This index provides a clear view of how inflation is affecting GDP. For the fourth quarter, the GDP Price Index is expected to increase by 2.5%, up from the 1.9% rise seen in the third quarter.
It is worth adding that the GDPNow model from the Federal Reserve Bank of Atlanta estimates real GDP growth in the fourth quarter of 2024 is 3.2% on Tuesday, up from 3.0% on January 17.
When will the GDP print be released and how can it affect the USD?
The US GDP report will be published at 13:30 GMT on Wednesday. In addition to the headline real GDP figure, changes in private domestic purchases, the GDP Price Index and the Q4 PCE Price Index figures could impact the US Dollar’s (USD) valuation.
A better-than-anticipated GDP headline could support the Fed’s dovish case and pressure the USD while discouraging figures could have the opposite effect on the American currency.
Valeria Bednarik, FXStreet Chief Analyst, says: “The US Dollar Index (DXY) recovered amid a risk-averse environment at the beginning of the week but stands far below the monthly high posted in mid-January at 110.18. At the same time, the ongoing advance lacks momentum, according to technical readings in the daily chart. The January 23 intraday high at 108.50 comes as an immediate barrier ahead of the 109.00 figure. Should the index surpass the latter, market players will be looking at the 109.40-109.50 region as a potential bullish target.”
Bednarik adds: “A decline below 107.75, the January 29 intraday low, exposes the monthly bottom at 106.97. Still, and given the risk-averse environment, US Dollar dips could be seen as buying opportunities, with additional falls unlikely in the near term.”
US Dollar FAQs
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.
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.
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.
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.
Read more.Next release: Thu Jan 30, 2025 13:30 (Prel)
Frequency: Quarterly
Consensus: 2.6%
Previous: 3.1%
Source: US Bureau of Economic Analysis
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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