Yesterday's U.S. GDP report triggered a surge in demand for the U.S. dollar and a sell-off in risk assets — and it comes as no surprise. According to the data, the U.S. economy grew in the second quarter at its fastest pace in nearly two years, after the government revised its previous estimate of consumer spending.
According to the report released Thursday by the Bureau of Economic Analysis, inflation-adjusted gross domestic product (GDP) rose at an annual rate of 3.8%, based on revised data. This is higher than the preliminary estimate of 3.3%, and clearly much stronger than the 0.5% contraction in the first quarter.
The acceleration in economic growth was primarily driven by stronger consumer spending, increased investment in non-residential assets, and a rise in government expenditures. Despite concerns about inflation, consumers continue to spend actively, supporting demand across various sectors of the economy. Increased business investment in new equipment and technologies indicates growing optimism about future prospects and a push to boost productivity. Additionally, a rise in exports of goods and services had a positive impact and contributed to a larger trade surplus.
The Bureau of Economic Analysis (BEA) also released its annual update to the national economic accounts, which showed that real GDP continued to grow at an average rate of 2.4% per year from 2019 to 2024. The revisions present a picture of an economy that rebounded quickly from the initial shock caused by the pandemic and has since transitioned into a period of more stable, trend-based growth amid persistent inflation.
The most recent quarterly GDP figures confirm that the economy recovered in the second quarter after a massive surge in imports early in the year, when companies rushed to stock up on goods ahead of tariff hikes by President Donald Trump. The third quarter also shows strength, with recent reports highlighting resilient consumer spending and continued business investment in equipment.
Separate data for August, also released Thursday, showed solid growth in equipment orders, while the goods trade deficit shrank more than expected. Initial jobless claims last week fell to their lowest level since mid-July.
Clearly, the latest GDP and unemployment claims data are likely to ease concerns sparked by the weak August employment report. Demand for the dollar has returned, as all of this could influence the pace of interest rate cuts at the two remaining Federal Reserve meetings this year. Economists continue to exercise caution, factoring in persistently high inflation and expecting a more moderate rate-cut trajectory.
As for the current EUR/USD technical picture, buyers now need to focus on reclaiming the 1.1710 level. Only then can a test of 1.1740 come into view. From there, a move toward 1.1770 is possible, though achieving this without support from major players will be quite difficult. The most distant bullish target would be the high at 1.1820. If the instrument declines, I expect significant buying interest only near the 1.1660 level. If no strong buyers are present there, it would be ideal to wait for a retest of the 1.1615 low or consider opening long positions from 1.1575.
Regarding the GBP/USD technical picture, pound buyers need to reclaim the nearest resistance at 1.3380. Only that would allow them to aim for 1.3420, though breaking above this level could prove to be quite challenging. The furthest upward target would be the 1.3460 level. In the event of a decline, bears will likely attempt to regain control around 1.3325. If successful, a breakout of this range could deal a serious blow to the bulls' positions and push GBP/USD toward a low of 1.3280, with the potential to reach 1.3240.
