GDP Surprises to the Upside
The United States GDP for the second quarter of 2025 was revised upwards to 3.3% year-on-year in the second estimate (Advanced GDP). This was up from 3.0% in the first estimate (Preliminary GDP), according to the latest figures from the Bureau of Economic Analysis (BEA). GDP recorded a sharp improvement in the second quarter after a 0.5% decline in the first quarter.
The BEA noted that the second estimate GDP report relied on more complete data than was available for the first estimate. The upward revision was attributable to stronger consumer spending and investment, but growth was partly offset by lower government spending and a decrease in imports. Personal consumption accelerated to 1.6% in second-estimate GDP, up from 1.4% in the preliminary estimate.
President Trump’s tariffs, which first took effect in April and are reflected in the GDP data for the second quarter, resulted in a massive drop in imports of around 30% in Q2. Exports declined around 1.8% during this period, resulting in an improvement in the US trade balance.
Trump can be expected to jump on the positive GDP report, which shows that the US economy is in good shape. After the first estimate, Trump called on Federal Reserve Chair Powell to lower interest rates, and it would not be a surprise if the President again demands a rate cut.
The money markets have slightly trimmed expectations for a rate cut in September, to 85% currently from 88% prior to the GDP release, according to CME’s FedWatch. Still, this indicates a very high likelihood of a cut next month, which would be the first rate reduction since December 2024. The big question is whether the Fed will cut again in December. Whether the Fed opts to cut or maintain rates in December will largely depend on the strength of the upcoming employment and inflation reports.
Market Reaction – US Dollar Shrugs, Stock Market Edges Higher
In the Forex market, the US dollar was slightly lower against the major currencies on Thursday but showed little reaction to the strong GDP release. The US dollar’s sharpest decline came against the Australian dollar, as the AUD/USD currency pair has climbed 0.45% on Thursday.
The US stock market showed moderate gains, with the S&P 500 Index up by 0.55%, breaking the psychological barrier at 6,500 and reaching another record high.
The Nasdaq 100 Index made even stronger gains, rising by more than 1% before the New York close.