The week ahead is marked by two important central banks delivering their monetary policy statements – the Bank of Japan and the Federal Reserve in the United States. While the two events are crucial for Japanese yen and U.S. dollar traders, the market is also interested in what the GDP data in the United States and Canada will reveal.
Since the COVID-19 pandemic hit the world, the GDP or Gross Domestic Product fell sharply in all countries. For the first time, the entire world was in an economic recession.
Last November, the world found out for the first time that vaccines have promising results. Since that moment, a race against the clock started, with the price being not only the defeat of the virus but also a quick economic recovery.
Chinese GDP Growth Signals Strong Bounce in Developed Economies Too
Unfortunately, there are not enough vaccines for everybody at this point, but the situation gets better by the day. The more time passes, the more vaccines will be delivered throughout the world, and the faster the economic recovery will be.
However, because of the inequalities in vaccine deliveries, some countries will experience economic growth faster and stronger than others. Hence, their currencies will likely benefit from it, as well as the stock market.
The Chinese GDP grew by over 18% in the first quarter of the year, when compared to the same quarter a year ago. The bounce was much stronger than expected, and the chances are that the U.S. economic growth will also exceed expectations.
Next Thursday, the advanced GDP in the United States is expected to show that the U.S. economy grew by 6.5% in the first quarter of the year. Judging by how the Chinese economy performed, the chances are that the U.S. economy will also beat expectations.
One day earlier, Jerome Powell will have a hard time explaining to market participants why the Fed is not preparing to taper its asset purchases. As the chart above shows, America is one of the nations that lead in the vaccination race, and so the economic recovery is much stronger – why the need for easing?
To sum up, the bigger the economic expansion, the more difficult for the Fed to keep its policy unchanged. The tapering may be closer than market participants expect.