- The US is set to report a robust 5.4% annualized growth rate for Q4 2021.
- Core inflation is set to rise to 4.9%, raising expectations for a move from the Fed.
- Assuming ongoing geopolitical tensions, the greenback is set to remain bid.
More than double than pre-pandemic – the 5% annualized growth rate expected for the fourth quarter is a reason to be cheerful. That may boost the dollar, but not stocks, which are wary of tighter monetary policy from the Federal Reserve. One day after the bank's big decision, Gross Domestic Product is set to move markets – as the Fed remains data-dependent.
The US economy is set to complete an impressive recovery in 2021 on a high note. The economic calendar is pointing to an increase of 5.4% annualized in the fourth quarter, far above 2.3% recorded in the previous three months.
The Delta COVID-19 variant held back America's expansion in the third quarter, and the bounce-back was robust in almost all of the quarter. Omicron came in late, and had a negative impact in December, as retail sales data showed for the final month of 2021.
The most recent data points are already factored into GDP calculations. Given the stop-start nature of the economy since the pandemic and high volatility, it would take a significant surprise for the headline figure to rock the boat. A sub-5% expansion rate would be disappointing, dragging the dollar down, and a level above 6% annualized would be a positive surprise. Gone are the days when a deviation of 0.1% would be substantial.
In case headline GDP growth comes out with a 5% handle, the inflation component could steal the show. The Fed's exact path of rate hikes and perhaps more importantly, the way in which the bank withdraws money from markets, is still up in the air. The Fed is data-dependent – and its current focus is inflation.
GDP growth comes in real terms, after taking price rises into account. Alongside this inflation, the figure known officially as the Personal Consumption Index (PCE) or also as the deflator, the focus will likely be on Core PCE. That statistic excludes volatile items such as food and energy and guides the Fed.
Economists expect it to hit 4.9% after 4.6% in the previous quarter. Again, assuming no major surprises from headline GDP, a deviation in Core PCE could rock the dollar. A level closer to 5.5% on underlying inflation would boost the greenback while a figure closer to 4.5% would depress it.
Given the persistently high inflation reads of late, there is more room for an upside surprise than a downside one.
Core PCE is on the rise, but where next from here?
The first GDP estimate tends to have a substantial impact on markets, but this time, it is squeezed between the high-stakes Fed decision and the Russian bear. Investors have one eye watching the Russian-Ukrainian front, and the risk of war and an energy crisis.
Assuming tensions remain at current, elevated levels, the safe-haven dollar would remain bid, helping it overcome weak figures. On the other hand, if there is a sudden defusion of tensions ahead of the release, the greenback could suffer a sell-off unless headline GDP and inflation smash estimates.
The US economy has likely expanded at a rapid clip of over 5% annualized in the final quarter of 2021. The Fed's focus on inflation means that Core PCE could steal the show from headline GDP. It is also essential to note the market mood leading into the event, especially the geopolitical wildcard.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Follow us on Telegram
Stay updated of all the news
EUR/USD drops toward 1.0700 after US jobs report
EUR/USD came under renewed bearish pressure in the second half of the day on Friday and declined toward 1.0700. Stronger-than-expected Nonfarm Payrolls (NFP) data helps the US Dollar gather strength ahead of the weekend and forces the pair to stay on the back foot.
GBP/USD retreats below 1.2500 as USD gathers strength
GBP/USD lost its traction and turned negative on the day below 1.2500. Following the initial mixed reaction to the upbeat May jobs report from the US, the US Dollar found its footing and caused the pair to reverse its direction. Nevertheless, GBP/USD stays on track to snap a three-week losing streak.
Gold falls below $1,960 as US yields rebound after US jobs data
Gold price turned south and declined below $1,960 on Friday. After the data from the US revealed that Nonfarm Payrolls rose 339,000 in May, the benchmark 10-year US Treasury bond yield gained more than 2% and recovered toward 3.7%, weighing heavily on XAU/USD.
China crypto community picks Ethereum, Arbitrum and BNB Chain as top protocols
Ethereum, Arbitrum and BNB Chain protocols are top picks for the Chinese crypto community, data from a report shows, a possible bullish catalyst for tokens related to these protocols as Hong Kong opens the door of crypto to retail investors.
LULU stock adds 15% on big Wall Street beat
Lululemon Athletica did it again. In something that has become quite predictable, LULU stock sailed 14.9% higher in Friday’s premarket to $377.20 after the prized athleisure brand posted a nearly 15% earnings beat for the first quarter.