Forex News

• US economy expanded at a stronger pace than expected in Q3.
• The US Dollar Index holds steady above 102.00 after the GDP data.

The United States' (US) Gross Domestic Product (GDP) grew at an annual rate of 3.4% in the third quarter, the US Bureau of Economic Analysis' (BEA) first estimate showed on Thursday. This print followed the 2.2% expansion recorded in the second quarter and came in better than the market expectation of 3.2%.

"The contributors to the increase in real GDP in the third quarter were increases in investment, consumer spending, and government spending that were partly offset by a decrease in exports. Imports, which are a subtraction in the calculation of GDP, increased," the BEA noted in its press release.

Other details of the report showed that the GDP Price Index was up 2.2% in Q3, below the market expectation of 3.5% and the 6.1% increase recorded in the previous quarter.

Market reaction to US GDP data

These figures don't seem to be having a noticeable impact on the US Dollar's performance against its major rivals. At the time of press, the USD Index was little changed on the day at 102.20.

The United States had an annual inflation rate of 3.6% in September when tracked by the Personal Consumption Expenditures (PCE), up from August’s 3.4% increase, as revealed by the US Bureau of Economic Analysis (BEA) on Thursday. In addition, these figures matched initial estimates.

The core PCE, excluding fluctuating food and energy costs, increased by 3.1% from a year earlier.

Monthly, the PCE and core PCE rose by 0.5% and 0.3%, respectively.

Market reaction

The US Dollar keeps its upside momentum in place, prompting the US Dollar Index (DXY) to reverse Wednesday’s pullback and resume its uptrend past the 102.00 barrier.

This section below was published as a preview of the US Personal Consumption Expenditures (PCE) data at 11:00 GMT.

• The US economy is expected to expand at an annualised rate of 3.2% in Q3.
• The US “exceptionalism” narrative should remain unshaken. 
• The US Dollar keeps its multi-day recovery well in place.

The United States (US) Bureau of Economic Analysis (BEA) is set to publish its preliminary estimate of the Gross Domestic Product (GDP) for the July-September period on Thursday, with analysts expecting the data to show annualised growth at a solid 3.2%, a decent improvement from the 2.2% expansion recorded in the previous quarter.

Markets brace for US growth and PCE data amid geopolitical jitters

Investors are anxious ahead of Thursday's release of the US preliminary GDP figures for the July-September 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 inflation gauged by the Personal Consumption Expenditures (PCE) report, the Federal Reserve’s (Fed) preferred inflation measure.

The upcoming GDP release keeps its importance intact as market participants will look for signs of any effects from the ongoing crisis in the Middle East and tariffs. Regarding inflation, market participants also expect the impact of Trump’s tariffs and the increased volatility around energy prices to remain a key focus.

The release follows the Fed’s October 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-Hormuz conflict and its impact on Crude Oil prices.

The Atlanta Fed’s GDPNow model, closely watched for its real-time tracking of economic activity, forecasts a 3.3% expansion in Q3 GDP as of its October 28 update (from 3.4% set on October 27).

When will the GDP print be released, and how can it affect the US Dollar Index?

The US GDP report, due at 12:30 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, which are 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 constructive amid the ongoing recovery. The index is trading in the upper end of its 18-month range north of the 102.00 barrier. It is worth noting that the positive outlook is expected to remain unchanged while above its 200-day SMA near 99.60. Further gains from here should meet the next hurdle at the YTD ceiling at 102.94 (October 14).

Downside levels emerge at the weekly trough at 101.44 (October 22), seconded by the provisional 100-day and 55-day SMAs at 100.62 and 100.57, respectively. South from here comes the more relevant 200-day SMA at 99.60, which precedes the September valley at 98.59 (September 9).

Momentum indicators lean bullish, with the Relative Strength Index (RSI) near the 61 level and the Average Directional Index (ADX) flirting with 36, suggesting growing strength behind the recent upward move.

• GBP/JPY holds modest gains as the Japanese Yen remains on the back foot.
• UK Autumn Budget draws a muted reaction, while traders expect a BoE rate hike in November.
• Traders await Tokyo inflation data and the BoJ’s interest rate decision, both due on Friday.

GBP/JPY holds modest gains on Thursday as the Japanese Yen (JPY) underperforms most of its major peers. Investors assess the UK Autumn Budget and await the Bank of Japan’s (BoJ) monetary policy announcement on Friday. At the time of writing, the cross trades around 210.64, up 0.15% on the day.

UK Chancellor John Healey presented his first Budget on Wednesday, sticking to the government’s fiscal rules. Key measures include £100 in energy support for eligible households, an extension of the fuel duty cut and higher taxes on banks, savers and landlords. The government also has £15 billion in fiscal headroom for 2029-30.

UK Budget seen as neutral for Pound and gilts despite firmer fiscal drag

Strategists at Brown Brothers Harriman judge that the UK October 2026 Budget “is neutral for GBP and gilts,” noting that while “the government modestly increased fiscal tightening” it also “plans to issue slightly more debt.” They highlight that the “cyclically adjusted primary balance, which excludes interest costs and adjusts for the economic cycle, is projected to improve from a deficit of -0.3% of GDP in 2026/27 to a surplus of +0.5% in 2027/28.”

This shift implies “a fiscal drag of 0.8% of GDP, up from 0.6% projected in March,” but BBH cautions that “the additional fiscal restraint is probably too modest to materially curb the nearly 125bps of BoE rate hikes implied over the next twelve months.”

The BoE announces its interest rate decision on November 5, with traders fully pricing in a 25 bps hike. The central bank has kept rates unchanged so far this year as policymakers saw limited signs of higher energy costs spreading into broader prices and wages. However, the latest rise in inflation, alongside steady labour market and growth figures, has strengthened the case for a November rate hike.

Meanwhile, the Bank of Japan (BoJ) is expected to keep interest rates unchanged at Friday’s meeting after delivering a cumulative 50 basis points (bps) of tightening earlier this year. The BoJ’s updated growth and inflation forecasts, alongside Governor Kazuo Ueda’s press conference, will be closely watched as traders anticipate another hike in December.

Ahead of the decision, Tokyo’s October inflation figures and September unemployment data will offer fresh insight into price pressures and labour market conditions.