FOREX: US GDP grows more than expected in 4th Quarter. Dollar makes gains.

By CountingPips.com

The U.S. economy expanded by more than expected in the fourth quarter of 2009 and at the fastest pace in over 6 years according to a release by the U.S. Commerce Department today. The advance government report released today showed that the U.S. Gross Domestic Product grew on an annualized basis by 5.7 percent in the October to December quarter following a real 2.2 percent growth rate in the third quarter.

The fourth quarter GDP numbers advanced by the highest growth rate since 2003 and surpassed economic forecasts expecting growth of approximately 4.7 percent.

GDP has now increased for two straight quarters after contracting for four quarters in a row. The economy declined by 6.4 percent in the first quarter of 2009 and by 0.7 percent in the second quarter before the third quarter’s 2.2 percent rise. Overall for the calendar year of 2009, GDP decreased by 2.4 percent following a 0.4 percent increase for 2008 and a 2.1 percent growth rate in 2007.

Contributing largely to the gain in GDP for the fourth quarter was a slowdown in the cutbacks of business inventories. Inventories fell by just $33.5 billion in the fourth quarter after a decrease of $139 billion in the third quarter and a decrease of $160.2 billion in the second quarter. This slowdown in the slashing of inventories accounted for adding approximately 3.4 percent to the GDP increase.

Also contributing to the economic expansion was an increase in consumer spending which makes up roughly two-thirds of U.S. economic activity. Consumer spending rose by 2.0 percent in the quarter after an increase of 2.8 percent in the third quarter.

A gain in exports also contributed positively to the GDP numbers as exports of goods and services increased by 18.1 percent in the quarter while imports advanced by 10.5 percent. Equipment and software investment increased to show a gain of 13.3 percent in the fourth quarter after increasing by just 1.5 percent in the third quarter.

The advance estimate GDP data is subject to revision as the 2nd estimate version is released at a later date and is scheduled for February 26th.

US Dollar gains in Forex Trading

The U.S. dollar has been mostly stronger in forex trading today against the other major currencies so far today after the GDP report. The dollar has gained today versus the euro, British pound, Japanese yen, Swiss franc and the Australian dollar while the dollar is currently trading virtually unchanged against the Canadian dollar and New Zealand dollar at 12:45 pm EST according to currency data by Oanda.

The U.S. stock markets have been mixed so far today with the Dow Jones gaining by over 20 points, the Nasdaq decreasing over 5 points and the S&P 500 is just about unchanged at time of writing.  Oil has edged down by $0.32 to $73.32 while gold is down by $3.30 to trade at the $1,080.30 per ounce level.

EUR/USD Daily Chart – The Euro continuing its decrease versus the US Dollar today in forex trading.  The EUR/USD has fallen to trading under the 1.3900 level, touching its lowest point since July 8th today. This pair has entered oversold territory on the Relative Strength Indicator (RSI) indicating extreme weakness on today’s daily chart.