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Revised GDP!
By Mike Conlon | December 22, 2009
Revisions in the GDP reports of both the US and the UK are the “news” of the day. In the UK, it was reported that 3rd quarter GDP contracted at .2% vs .3%, but missing analyst expectations of .1%. This means that their economy had contracted less then previously thought. As a result, the British pound (GBP) fell against the US dollar, falling briefly below the 1.60 mark for the first time in the last 3 months. Also, there was a UK report that the housing market will not rebound as quickly as had been hoped.
Meanwhile in the US, 3rd quarter GDP was revised down to a gain of 2.2% from the previously reported 2.8%. Meaning the US economy did not grow as rapidly as we had been led to believe.
So what is the takeaway from all of this?
1) That advanced GDP figures are not to be taken as “law” as they are rarely on target.
2) That these revisions appear to be non-events as the currencies of each respective country haven’t moved much as a result.
So why do these revisions occur? Well, not to be a conspiracy theorist, but governments have the ability to be the biggest “manipulators” out there. Between putting forth bogus numbers, revisions, and data manipulations, a government can and often will interfere with their currency.
So should this be seen as a bad thing? Actually not, it should be viewed as a good thing! As long as you know which side of the trade to be on! There’s an old investing adage out there that says, “Don’t fight the Fed”. Truer words could not be spoken in regards to the forex market.
When a government body attempts to manipulate a currency, it is best to ask yourself what it is that they are trying to accomplish? One of the first questions you should ask is “Cui bono” or “who benefits”. This is one of the most basic investigating techniques to attempting to figure out what may happen in the future. And let’s face it– we’re all junior Private Investigators when it comes to trying to figure out what’s going to happen next.
So when you see data come out or numbers that are revised, take them at face value but with a grain of salt. But then ask yourself what is the end goal. This will help your trades become more clear to you, and hopefully get you onto the “right”side of the trade more often than not.
To learn more about how to read economic figures and how they apply to a currency, be sure to check out our currency trading courses!
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