US Advance GDP came out today much better than the estimate. The economy grew by 6.9% in the last quarter of 2021 – so what does it mean for the US dollar?
One day after the Federal Reserve of the United States delivered one of its most hawkish press conferences, the US Advance GDP for the Q4 2021 was released today. It showed that the US economy grew by a whopping +6.9% in the last quarter of 2021, while the market expected a +5.2% growth.
The release justifies the hawkishness revealed by the Fed’s Chair at yesterday’s press conference. Jerome Powell answered questions regarding the potential harm to the economy if raising rates too fast by saying that the US economy is in good shape. Today’s data confirms it.
So what does today’s data mean for the US dollar? Here are three reasons to be bullish on the dollar after today’s GDP report:
- Consumer spending and business investment remain strong
- US economic activity surpassed the pre-COVID-19 level
- Omicron to impact only the Q1 2022 GDP
Business investment and consumer spending were strong
On the quarter, consumer spending remained strong, advancing by 3.3%, driven mainly by a gain in services outlays. Also, business investment advanced by 2%, with software investment and research and development contributing to the growth the most.
The consumer is the pillar of economic growth. If the consumer is not spending and stashes capital, the economy doesn’t grow to its full potential. As such, rising consumer spending and business investment are bullish for the US dollar as they suggest further economic strength ahead.
US economy is well above the pre-COVI-19 level of activity
Today’s release shows that the US economy is well above the level of activity registered before the COVID-19 pandemic. However, the federal funds rate was much higher, thus giving the Fed room to hike the rates faster. Higher rates are bullish for the US dollar.
Omicron to represent only a temporary slump in Q1 2022
Much was discussed about the omicron variant’s impact on the Q1 2022 economic growth. Judging by the Q4 2021 performance, the US economy is on a robust trajectory in early 2022 and omicron’s slump, if any, will only be a temporary slump.