What to Expect as US GDP and the Fed’s Favorite Inflation Gauge Drop Today

The United States (US) Bureau of Economic Analysis (BEA) is set to publish its preliminary estimate of second-quarter Gross Domestic Product (GDP) on Thursday, with analysts expecting the data to show annualised growth at a solid 2.1%.

Markets Brace for US Growth and PCE Data Amid Geopolitical Woes

Investors are anxious ahead of Thursday’s release of the US preliminary GDP figures for the April-June period, which is generally considered the most market-moving estimate of the three issued each quarter.

Beyond headline growth, the domestic calendar also includes the publication of the inflation tracked by the Personal Consumption Expenditures (PCE), the Federal Reserve’s (Fed) preferred inflation gauge.

The upcoming GDP release keeps its importance intact as market participants will look for signs of any effects of the ongoing crisis in the Middle East.

Regarding inflation, market participants also expect the impact of Trump’s tariffs and the increased volatility around energy prices to remain front and centre.

The release follows the Fed’s July 28-29 meeting, where the Committee delivered a widely anticipated “on hold” decision on the Fed Funds Target Range (FFTR). 

Also included in the report is the GDP Price Index, commonly called the GDP deflator, which measures inflation across all domestically produced goods and services, including exports but excluding imports. These data will become more prominent amid the ongoing US-Iran conflict and its impact on Crude Oil prices.

The Atlanta Fed’s GDPNow model, closely watched for its real-time tracking of economic activity, forecast a 1.6% expansion in Q2 GDP as of its July 27 update (down from 1.7% set on July 17).

When Will the GDP Print be Released, and How Can it Affect the US Dollar Index?

The US GDP report, due at 13:30 GMT on Thursday, could prove pivotal for the US Dollar (USD) in case of a big surprise in either direction, as markets remain almost exclusively focused on developments from the Middle East.

Alongside the headline growth figure, markets will scrutinise updates to the GDP Price Index and the PCE, crucial data points that could shift expectations for the Fed rate path and the Greenback’s direction.

A stronger-than-expected GDP, or even an in-line reading, should keep the US “exceptionalism” narrative well in place, offering a tailwind for the current recovery of the buck. Inflation data, on the other hand, is expected to match the trend already seen with the release of CPI figures earlier this month.

The broader technical outlook for the US Dollar Index (DXY) remains slightly constructive amid the ongoing consolidative price action. The index is trading in the upper end of its multi-month range, well north of the 101.00 barrier.

It is worth noting that the positive outlook is expected to remain unchanged while above its 200-day SMA near 99.10. Further gains from here should meet the next hurdle at the YTD ceiling at 101.80 (June 24).

Downside levels emerge at the July floor at 100.35 (July 14), seconded by the provisional 55-day and 100-day SMAs at 100.24 and 99.68, respectively. South from here comes the more relevant 200-day SMA at 99.12, which precedes the weekly trough at 98.75 (May 29).

Momentum indicators lean bullish, with the Relative Strength Index (RSI) near the 63 level and the Average Directional Index (ADX) just above 25, suggesting growing strength behind the recent upward move.