The US Commerce Department released its final third-quarter GDP figure which came in 0.5% higher than the previous estimate and now shows an annualized GDP growth rate of 4.1%. The data was especially well received after the US Federal Reserve decided to cut its $85 billion economic stimulus program known as Quantitative Easing Three by $10 billion per month to $75 billion.
Forex traders largely ignored the better-than-expected GDP data and the US Dollar lost steam as traders sold-off the US currency after the data while equity traders cheered the report and pushed equity markets to new all-time highs. Volume increased as volatility dropped temporarily, but it could see a sharp increase into the close of the North American trading session thanks to quadruple witching day.
It is widely expected that the US Federal Reserve under the Chairwomanship of Janet Yellen will reduce QE3 by $10 billion per month during each of the Fed meeting in 2014 until the full exit by December. This is a very pre-mature thinking and shows the limited understanding of economic developments in the US pipeline.
Since the announcement of the initial taper the US Dollar did not see positive momentum and many analysts are surprised by the moves in US Treasuries, mainly the 10-Year notes. It is very likely that the upward revised GDP figure for the third-quarter marks the peak of US economic output for the rest of the decade and that traders should get used to lower performance.
It is likely that we will see another reduction in stimulus during the next two meeting in 2014 which are scheduled for January as well as March until the Fed will be forced to pause and eventually may decide to increase stimulus. It is very unlikely that the US Fed will exit QE3 in 2014 or any year beyond that. The US Dollar should feel the negative impact of this and continue to weaken further against all currency pairs.