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Home News Forex Broker News fxcc blog

If the forecast for USA GDP is met then the FOMC could react next week by slashing the key interest rate to 2.00%

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At 13:30pm U.K. time on Friday July 26th the latest annualised QoQ GDP figure for the USA economy will be published. The metric covers the time period up to the second quarter of 2019, Q2. The figure is not the estimate it’s the actual and final reading published by the BEA (Bureau of Economic Analysis), although it can be subject to a revision at a later date.

The
forecast is for a fall in GDP growth to 1.8% from the previous reading of 3.1%
in the previous quarter. The estimates are identical from both major
news-agencies Bloomberg and Reuters, after they’ve polled their panels of
economists.

Such a
fall, if the estimate is met, could be ignored by investors in USA equity
markets who’ve pushed up the value of equity indices to record highs over
recent weeks. Fundamental economic data has been largely overlooked by equity
market participants as markets have continued to print record highs. This
pattern could be repeated if investors brush off such a figure, assuming the
reading meets the forecast.

The FOMC
are scheduled to meet for a two-day conference from July 30th to July 31st.
Opinions vary in relation to how accommodating the Federal Reserve Open
Committee will be, the bets on the committee cutting the key lending rate by
25bps to 2.25% have faded over recent days. However, if the GDP metric comes in
at the level predicted then the FOMC will not only have the justification to
lower the rate they may consider cutting by up to 50bps taking the key rate
down to 2%. Therefore, despite such a collapse in GDP the reading could prove
to be bullish for equity markets helping them to print new record highs.

Naturally,
the U.S. dollar will also come under close scrutiny as FX markets react to the
GDP figure. Market analysts and traders may have already priced-in the
potential fall, or they may quickly deduce that the FOMC will be under
increased pressure to cut rates, therefore, USD may fall in value versus its
main peers. With the FOMC meeting in mind the slump in GDP could be bullish for
equity markets if (as previously mentioned) investors believe the committee is
getting ahead of the curve to fend of a potential slump or recession.

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