FX.co ★ U.S. Q3 growth outpaces forecasts despite economic hurdles

In an unexpected turn, the U.S. economy in the third quarter displayed a resilience that outstripped most projections, fueled predominantly by buoyant consumer demand. This bullish trend emerged even as analysts pointed to heightened interest rates, surging inflation, and a myriad of internal challenges that could have potentially weighed down growth metrics. A report by the Department of Commerce spotlighted that the U.S. gross domestic product for the third quarter witnessed an annualized surge of 4.9%. This is especially noteworthy when juxtaposed with the 2.1% expansion recorded in the preceding quarter. Analysts had pegged this growth closer to a 4.7% mark.

This economic rally can be attributed to several factors. A robust consumer spending pattern took center stage: personal consumption expenditures, a barometer for consumer spending habits, soared by 4%. To offer a comparative lens, this metric had nudged up by a mere 0.8% in Q2. Meanwhile, private domestic investments weren't far behind, registering a stellar 8.4% growth. Complementing this uptick, government spending jumped 4.6%, signaling a holistic economic revitalization across both private and public sectors.

The report highlighted that consumer spending was fairly balanced between goods and services, posting growth rates of 4.8% and 3.6% respectively.

Surprisingly, financial markets delivered a tepid response to the news. The U.S. dollar, in a somewhat puzzling move, lost some ground against its counterparts like the euro and the British pound.

A predominant narrative amongst economists was that the U.S. was tiptoeing on the brink of a mild recession. However, economic growth persisted, primarily buoyed by consumer spending that exceeded all anticipations. Consumers shouldered approximately 68% of the GDP in the third quarter. Interestingly, even as the government's pandemic-era stimulus packages wound down, expenditures remain high. Households appear to be trimming their savings while raising their credit card ceilings.

Such data acts as a bullseye for the Federal Reserve, which not only has been hiking rates at the most rapid clip since the early 1980s but vows to keep them elevated until inflation retreats to palatable levels. Price growth considerably outpaces the central bank's annual 2% target, though inflationary pressures have ebbed in recent months.

However, headwinds for consumers loom large. The impending resumption of student loan repayments is poised to dent family budgets, while rising gasoline prices won't go unnoticed. Geopolitical strains further compound the potential challenges.

While the U.S. has showcased its economic resilience, the consensus amongst most economists is a significant deceleration in growth by year-end. Nonetheless, the predominant sentiment is that barring unforeseen jolts, the U.S. will skirt a full-blown recession.

For buyers to regain control of the EUR/USD pair, maintaining a position above the 1.0530 mark is crucial, providing a potential pathway back to 1.0560. From this level, a leap to 1.0590 can be envisioned, though achieving this without support from major players might prove challenging. The ultimate target lies at a peak of 1.0620. In the event of a downturn, I anticipate significant moves from major buyers around the 1.0530 region. Should this area remain barren, it would be prudent to await a refreshed low of 1.0490 or consider going long from 1.0470.

Demand for the GBP/USD pair is predicated on the defense of the immediate support at 1.2070. Should this hold, optimism for further GBP/USD strengthening would hinge on securing the 1.2100 threshold. Establishing a foothold here may rekindle hopes of a rebound towards 1.2140, paving the way for discussions on a more pronounced Sterling surge to 1.2170. Conversely, in the face of a pair downturn, bears will attempt to wrest control at 1.2070. If they succeed, breaking through this range could dent bullish positions, driving GBP/USD towards a low of 1.2040 with an outlook to touch 1.2010.