US GDP Quick Analysis: Strong growth now, stronger even later, three reasons for the dollar to rise


  • The US economy grew at an annualized pace of 6.4%, within estimates. 
  • GDP was held down by inventories, which will likely be replenished later on.
  • Robust business investment implies an acceleration down the road.
  • A leap in prices means inflation is moving up, potentially triggering a rate hike.

The Federal Reserve will keep printing dollars and depress the currency – less than 24 hours after making that assumption, Gross Domestic Product figures for the first quarter are already causing a rethink. While the headline is at 6.4% annualized growth – well within expectations – the components are pointing to heating and perhaps overheating economy. That could boost the dollar. 

Here are three positive developments that could boost the greenback:

1) What comes down, goes up

Had inventory growth remained unchanged, GDP would be 9% and not 6.4%. The drawdown in physical stocks dragged growth some 2.64% annualized, a substantial impact.

When inventories are depleted during one quarter, they tend to be replenished in the following one. Moreover, this drawdown could push manufacturing higher. The second quarter is already looking strong amid the quick reopening, and now it looks even brighter. 

2) Investing in the future

Business investment is up 9.9% annualized in the first quarter and home investment has leaped by 10.8%. Such expenditure will bear even more fruits in the future, whether in the current quarter or the next ones. It is also a sign of confidence in the world's largest economy. 

3) Inflation is coming

Jerome Powell, Chair of the Federal Reserve, prepared a full speech to explain why inflation is transitory – base effects and bottlenecks are to blame. The Fed is watching but assumes price rises will dissipate. 

However, inflation figures published in the GDP report point surprised to the upside,w with the price index – aka the "deflator" jumping by 4.1% annualized compared with 2.6% projected. While the core figure is only at 2.3%, the rapid advance in headline prices could eventually spill into inflation expectations. That could move the Fed toard tapering its bond-buys sooner rather than later.

Overall, growth components are pointing to faster expansion down the line, and could eventually push the dollar out of its current hole. 

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.

Feed news

Latest Forex Analysis


Latest Forex Analysis

Editors’ Picks

EUR/USD extends gains amid dollar weakness

EUR/USD has bounced above 1.2150 as the US dollar resumes its decline in the aftermath of Friday's weak job figures. Uncertainty about the ECB's policy somewhat weighs on the currency while the upbeat Sentix Investor Confidence supports it.

EUR/USD News

GBP/USD soars to 1.41 after UK elections, US Nonfarm Payrolls

GBP/USD has hit a new three-month high just above 1.41 after the SNP failed to win a majority in Scotland and as the UK is set to extend its reopening. The dollar is still suffering from Friday's weak jobs report.

GBP/USD News

XAU/USD eyes critical resistance at $1,850

XAU/USD is rising for the fourth straight day on Monday. Next hurdle for gold is located around $1,850. A technical correction could be witnessed before the next leg up.

Gold News

Dogecoin eyes consolidation after its recent pullback

Dogecoin price could undergo consolidation as it is stuck between two demand barriers. Transactional data shows underwater investors at $0.624 could hinder an upswing.

More Dogecoin News

S&P 500 Nasdaq Day Ahead: No jobs, no bears, no way

Friday's jobs report still looms large over markets this morning with the dollar suffering a pasting at the hands of a resurgent sterling. Yields continue to shrug it off and slumber while the VIX does give a little wobble.

Read more

Majors

Cryptocurrencies

Signatures