The US Dollar had a rough day on the financial markets after news broke that the US will be imposing new tariffs on Japan automakers. On Thursday, the US Bureau of Economic Analysis (BEA) reported that the United States’ Gross Domestic Product (GDP) expanded at an annual rate of 2.4% in the fourth quarter of 2024. These economic shifts are changing the calculus for developers in the market. The US Dollar was unable to find any bid, leading the US Dollar Index to fall 0.35%, closing at 104.32 for the day. Despite the Index going into the red, it was still able to hold above 104.50.
The BEA noted that much of the growth in GDP came from improvements in consumer and government expenditures. This expansion was modestly offset by a decrease in investment. The apparent dip in imports helped make the overall GDP calculation look better than it would have otherwise. That’s because in this economic measure, imports count negatively; they are subtracted.
GDP Growth Supported by Consumer and Government Spending
The latest quarterly GDP numbers show a healthy economic growth fueled mostly by rising consumer and government expenditures. These surprising results were front and center in the BEA’s press release.
“The increase in real GDP in the fourth quarter primarily reflected increases in consumer spending and government spending that were partly offset by a decrease in investment. Imports, which are a subtraction in the calculation of GDP, decreased,” – The US Bureau of Economic Analysis (BEA)
This low economic growth shows that we’re in the same boat as last quarter, with consumers taking center stage. Just remember that quarterly GDP numbers provide only a snapshot of economic vitality. In reality, temporary factors can dramatically change these numbers with each census. The ripple effects from the Covid-19 pandemic starting in early 2020 are probably the best known example of these transitory interruptions.
Impact on US Dollar and Gold Markets
The day’s financial developments were marked by the US Dollar’s struggle as it reacted to the announcement of auto tariffs. This announcement sent the US Dollar Index into a tailspin. The index measures the dollar’s value against a basket of major foreign currencies.
On the commodities front, gold prices underwent a correction after approaching a record high earlier in the day. Gold was trading close to $3,040 on Tuesday, after coming within $13 of a new all-time record high above $3,050. After record pricing, gold markets have recently cooled, largely due to increases in US Treasury bond yields. These yields are the main factor capping the topside for XAU/USD. In normal circumstances, increased interest rates would be considered a negative environment for gold. That’s because they raise the opportunity cost of holding non-yielding assets, such as gold, rather than cash deposits.
Economic Outlook and Considerations
Those annualized quarterly GDP numbers are a misleading indicator of strong growth. Analysts are cautioning that these numbers have baked in this growth rate for 12 months, which would clearly be an unsustainable level of growth. One-off shocks can get in the way of understanding growth. These effects might skew data in the short term, but they are not expected to persist long-term.
The economic landscape remains complex as policymakers and market participants navigate these figures alongside broader economic indicators. The significant drop in imports indicates that we might be seeing shifts in our trade dynamics that could raise future GDP in the longer term.