25 September final Q2 GDP was positively surprising, one of the largest upward revisions to a final figure in recent years, and showing the strongest growth in nearly two years. This article summarises recent events affecting the dollar, primarily GDP, then looks briefly at the charts of EURUSD and GBPUSD.
The upward revision to last quarter’s GDP seems to be particularly positive because it comes after a quarter of contraction and because the latest revision comes primarily from consumer spending:
With the first quarter’s contraction having been caused by much higher imports as companies tried to stockpile goods ahead of new tariffs, many participants had expected last quarter’s results to be positive but only because of the expected decline in imports. That seems clearly now not to be the case.
Although imports did indeed decline significantly from April, as expected, consumer spending in the USA has remained robust considering the circumstances since the end of the first quarter of 2025. Personal consumption expenditure rose 2.5% in Q2, compared to the second estimate of 1.6% and fixed investment was also revised up. These figures overall suggest that earlier worries about a downturn in the USA might be premature; the preliminary figure for Q2’s GDP has now been revised upward twice.
There’s also some evidence that the job market in the USA might not be as weak as seen in the last couple of months. 25 September’s initial jobless claims, with figures for 20 September, were significantly lower than the consensus:
218,000 was the lowest figure for two months and nearly 20,000 below the consensus. This might just be a blip, but it’s an important consideration for longer term traders in the context of much worse NFPs in the last two months. GDP will almost certainly still be lower this quarter, but less negativity from the labour market could suggest that a contraction in Q3 is questionable.
Another cut by the Fed on 29 October still seems very likely, but the probability of this has dropped slightly to around 85% in recent days, according to CME FedWatch. However, the likelihood of a cut at each of the Fed’s remaining meetings has dropped more than 20% compared to this time last week to about 60% now. For more clues on how likely the Fed is to cut twice more in 2025, traders will focus very closely on upcoming job data and 30 October’s preliminary GDP for the third quarter.
The euro-dollar has declined in the last couple of days as sentiment on the dollar improved, and the greenback also had a strong boost from a large upward revision to last quarter’s GDP and initial jobless claims on 25 September, significantly below the consensus. The now somewhat lower probability of two more cuts by the Fed before 2026 doesn’t seem to have affected euro-dollar much, given that the carry trade will very likely continue to favour the dollar into the first quarter of next year and possibly beyond.
