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US Q2 GDP +1.7% – USD extends gains

The US economy grew by 1.7% in Q2 GDP. It was expected to grow at an annual rate of 1.1% in Q2 2013 in the initial “Advance” release. The economy grew at a rate of 1.1% in Q1, according to the new revision, which came on top of the previous “final” number of +1.8%. So, the headline number is better than expected, but the previous number was downgraded. Now, it is important to remember that apart from this publication for Q2, the BEA also released 2 major sets of revisions.

The dollar was significantly stronger before the release, riding on the better than expected ADP number.  The dollar is now extending its gains.

Big market move

EUR/USD dropped as low as 1.3208, GBP/USD was pushed to 1.5132, USD/JPY is higher at 98.35, and AUD/USD extended its drop below 0.90 and already reached 0.8940. USD/CAD also moved higher, but an OK Canadian GDP slowed down its rise.

Here are some components of the publication: The GDP price index rose by 0.7%, below 1% expected. Core PCE is also lower: 0.8% instead of 1% on a quarterly basis. Personal consumption rose by 1.8%, above 1.6% expected (but the previous was revised to the downside: 2.3% from 2.6%). The employment cost index rose by 0.5%, more than 0.4% expected.

Big revisions

The big revisions are regular annual revisions for the previous years. This was expected to be positive, as Gross Domestic Income was moving faster than GDP, and so were jobs.

The second big change goes a longer way back: it is a big methodological change that redefines GDP and was expected to make the GDP number significantly larger. This wasn’t expected to change the trend. For example, the TV series Seinfeld was expected to be reclassified as investment instead of as part of the network’s process.

Big day

The GDP release is the second big release of the day, after ADP, which came out better than expected with +200K jobs and an upwards revision of +10K for the previous month to 198K. According to ADP, the labor market stronger.

The third and last one is the FOMC decision at 18:00 GMT. While Bernanke and co. are expected to keep the powder dry for September’s meeting, each word of the statement will be closely watched.

Further reading:  5 Reasons for Forex. Now.

Yohay Elam

Yohay Elam

Yohay Elam: Founder, Writer and Editor I have been into forex trading for over 5 years, and I share the experience that I have and the knowledge that I've accumulated. After taking a short course about forex. Like many forex traders, I've earned a significant share of my knowledge the hard way. Macroeconomics, the impact of news on the ever-moving currency markets and trading psychology have always fascinated me. Before founding Forex Crunch, I've worked as a programmer in various hi-tech companies. I have a B. Sc. in Computer Science from Ben Gurion University. Given this background, forex software has a relatively bigger share in the posts.