US Economy Grows Better-than-anticipated in Q3

US Economy Grows Better-than-anticipated in Q3
October 31, 2019


The euro traded sideways with slight bearish bias against the US dollar yesterday after the US Commerce Department reported a slight slowdown in the economic growth in the third quarter, compared to the previous quarter, but better-than-anticipated by economists. The US dollar was also supported by upbeat private-sector job growth in October. Notably, a marginal increase in German unemployment also weakened the euro. After opening at 1.1110, the EUR/USD pair rose to a high of 1.1123 before declining to touch a low of 1.1102 in the past 24 hours.

The US Commerce Department revealed that the country’s real gross GDP grew by 1.9% in Q3 2019, after rising by 2% in the earlier quarter. Economists had anticipated GDP growth to decline to 1.6%. The better-than-anticipated economic expansion reflects the positive impact of consumer spending, residential fixed investment, government spending, and exports. However, the GDP growth was negatively impacted by non-residential fixed investment, increase in imports, and private inventory investment.

The consumer spending grew 2.9% in Q3 but was slightly below the 4.6% growth recorded in the previous quarter. That was also the main reason for the slowdown in US GDP growth.

Andrew Hunter, a Senior US Economist at Capital Economics, opined that the GDP growth was better-than-anticipated by economists. Hunter said: “The 1.9% annualized gain in third-quarter GDP, down only marginally from the 2.0% gain in the second, was a little stronger than we had expected.”

Hunter further pointed out that the slowdown in GDP growth has pushed down annual economic growth to a three-year low of 2%. The economist believes that it was enough for the US Fed to slash the benchmark interest rate by 25 basis points in the monetary policy meeting held yesterday.

The document also revealed that consumer prices increased by 1.7% in the third quarter, up from 1.6% in the second quarter.

In the meanwhile, job data released by payroll processor ADP indicated that private sector employment increased by 125,000 jobs in October, versus 120,000 jobs anticipated by economists. The report also noted that private-sector job additions in September were downwardly revised to 93,000, from the 135,000 jobs reported earlier.

Commenting on job data, Mark Zandi, chief economist of Moody’s Analytics said: “Job growth has throttled way back over the past year. The job slowdown is most pronounced at manufacturers and small companies. If hiring weakens any further, unemployment will begin to rise.”

In the Eurozone, the Federal Employment Agency of Germany reported an increase in the number of jobless people by 6,000 2.287 million in October, down from 9,000 in the earlier month. Notably, the jobless rate remained unchanged at 5% in October and matched economists’ expectations.

The monthly report from Bundesbank expressed concerns that the powerhouse of Europe could have entered a technical recession in Q3 2019. Notably, the IMF (International Monetary Fund) has forecast the German economy to expand only by 0.5% in 2019.

The better-than-anticipated US GDP and employment data are expected to keep the greenback stronger against the euro in the short-term.

Technically, the EUR/USD pair continues to trade in a narrow range of 1.1075 and 1.1123. Furthermore, the MACD indicator is having a negative reading. Therefore, the currency pair is expected to decline in the short-term.

EUR - technical analysis - 31st Oct 2019

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Sammy is our forex expert, with over 20 years experience in the financial sector, she will be keeping you up to date with the ups and downs of currencies around the world

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