Fundamental Major Currencies

Gross Domestic Product (United States)

Previous    1.3%
Forecast    2.5%

Definition   

The total market value of all goods and services produced within the political boundaries of an economy during a given period of time released by the Bureau of Economic Analysis from the U.S. Commerce Department, were usually it's calculated on an annual basis.  The GDP is usually looked at as the official measure to the health of an economy as it reflects the nation's productivity. GDP is divided among personal consumption, investment, net exports, and governmental spending as follows:

GDP = C + G + I + NX

Where:

"C" refers to all private consumption, or consumer spending, in a nation's economy; this includes most personal expenditures of households such as food, rent, and medical expenses and so on but does not include new housing.

"G" refers to the sum of government spending; from salaries to the public sector to military purchases expenditure; the measure does not include transfer payments such as social security or unemployment benefits.

"I" refers to the sum of all the country's businesses investment in capital; spending by households on new houses for example is also included in Investment. 'Investment' in GDP is specifically identified as non-financial product purchases.

"NX" refers to the nation's total net exports of goods and services minus total imports, since they are already included in C, I, or G thereby should be deducted to not count foreign supply as domestic (NX = Exports - Imports)

Commonly data are complied and released on a quarterly basis coming out in the month after a quarter has ended, usually reported in "real" terms, which is economic growth minus the effect of inflation. The reading is released throughout the course of the quarter revised at least two times until the final reading; the sequel starts with the Advanced Estimate, then the Preliminary Reading, and then the Final Reading. Some countries report their GDP reading in annualized term like the United States, which is what the annual change would be if the quarter's pace of growth or contraction continued for a year.

The report also includes a quarterly estimate for personal consumption and core personal consumption expenditures, the personal consumption index measures the chained value compared with a base year on yearly adjusted terms, while the core personal consumption expenditure is a prices index from the GDP report and is considered an inflationary gauge that measures the difference between current dollar PCE and chain dollar PCE.

General Effect   

The GDP is considered a very important indicator that moves the currency markets hectically for the value of such a reading.  The reading is merely a reflection of a certain economy's performance in a specified period of time; therefore any improvement reflects the wellbeing of the economy in all its considered aspects. Consequently, a revitalized economy is reflected positively on the currency providing strength and demand on that currency.

The GDP reflects the markets' cycle that is starting by the consumer with increased income and high confidence in the economy would likely rise the level of spending therefore production levels increase more employment resulting in  the  availability for more cash to spend empowering the cycle of production, which in result ends by empowering the currency.

The effect as mentioned is positive on the currency and direct; as for the equity markets the effect is towards the upside as well for the unbreakable tie that links any economy to the equity market, if there is growth there is definitely an increase in the equity market as well for it is a reflection of the output of that economy. Therefore any increase in the GDP affects positively the currency as well as the equity market and the opposite of this is as well applicable. 

Definitely we should taken into account the existing factors that push up the GDP highly starting of improves economic level for consumers that causing boosts  their willingness to  spending money to satisfy different needs . So if consumer income level increase that allows him good opportunity to spend based on his confidence at local economy. As a result the National investments and the productivity rise to hit a new high economic level, which support and strengthening the local currency. 

The gross domestic product effect at stock exchange considered direct, therefore the occurred enhancements at different production sectors and business sector intend to be profitable for stock market companies, according to increasing there activities and revenues that place upward pressure at companies shares causing a raising on the entire index, for this reason plus the obvious impact of GDP at stock market the, its importance level considered significant.

Best Case Scenario   

In line with expected growth or even higher will be a good risk signal for markets, where it will ease woes over growth and recession and might support the dollar on eased speculation over third round of QE

Worst Case Scenario   

Weaker than expected growth and personal consumption will be downbeat on the sentiment and will pressure investors again to shun risk on growing fears of the slowdown and revive recession woes, which also might support the dollar slightly yet over the coming period weaken it on the back of further QE expansion