What Is GDP Q/Q Revised And It’s Impact On Currency Market?

As a currency trader, you should be familiar with the various Economic News Calender Terms. One of the important Economic News Releases are the GDP Q/Q Revised. GDP is an important economic term that is an acronym of Gross Domestic Product. GDP is always measured in terms of %age change terms. If the GDP growth is positive it is considered to be good meaning the economy is expanding. However if the GDP growth figures are high, it can be inflationary. In order to fight inflation, central banks always have to increase the interest rates. Increase in interest rates results in the appreciation of the currency of that country.

This year, US GDP figures had been good. This made USD strong and bullish. Right now USD is high against most currencies. So you can well imagine when these GDP Q/Q figures are released, the market can react pretty strongly to it if there is a strong element of surprise in it. Note the word strong element of surprise. Markets don’t like to be surprised. Most of the publicly available information is already compounded into the price. So when the market gets a surprise it gives a knee jerk reaction and tries to absorb the surprise as soon as possible into price.

GDP measures summary value of goods and services generated in a relevant country or region. A region’s gross domestic product, or GDP, is one of the ways for measuring the size of its economy.  Market influence of GDP Unexpectedly high quarterly GDP growth is perceived to be potentially inflationary if the economy is close to full capacity; this, in turn, causes bond prices to drop and yields and interest rates to rise. Where the stock market is concerned on one side higher than expected growth leads to higher profits and that’s good for the stock market. On the other, it may increase expected inflation and lead to higher interest rates that are bad for the stock market. Larger than expected GDP growth will tend to appreciate the exchange rate as it is expected to lead to higher interest rates.

In general, the longer the lag time, the better the data are in terms of coverage and detail. Because both quick release and accuracy are highly valued, there is a constant tradeoff between quality and tim­ing. As a result, BEA releases several “vintages” of NIPA estimates for any given quarter or year, with each vintage—or revision—being based on better source data. “Advance” current quarterly estimates (based on in-complete monthly data), are released near the end of the first month after the end of the quarter. At the end of each of the following two months, revised estimates are released that incorporate revised and newly avail­ able monthly and quarterly data; these releases are re­ferred to as “preliminary” and “final” quarterly estimates.

Now you don’t need to become an expert at how to measure GDP. This is the job of economists. However as a currency trader, you should have enough understanding of the fact the the market takes these GDP figures seriously. The greater the deviation from the expectation, the higher the reaction shown by the market. As said in the beginning, markets don’t love surprises. So if the released figures have no deviation from the expectation, there will be little reaction by the market. However sometimes the released figures have a great deviation from the expected, market will react violently and try to absorb the surprise into the price as soon as possible.

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