U.S. GDP increased at a 3.5% annualized rate in the third quarter, the Commerce Department said on Wednesday in its second estimate of third-quarter GDP growth. That was unchanged from its estimate in October and well above the economy's growth potential.

The economy grew at a 4.2% pace in the second quarter. While businesses accumulated inventory at a faster pace and spent more on equipment than initially thought in the third quarter, that was offset by downward revisions to consumer spending and exports.

Solid third-quarter growth is expected to keep the Federal Reserve on course to raise interest rates in December for the fourth time this year, despite an escalation of criticism from Trump that tighter monetary policy is slowing down the economy. The second estimate for the July-September quarter GDP growth was in line with market expectations. U.S. financial markets were little moved by the data.

Growth estimates for the fourth-quarter are currently around a 2.5% pace. The market expects GDP growth to slow further in 2019 as the fiscal stimulus fades and the effects of a bitter trade war with China as well as a strong dollar take their toll.

The third-quarter growth slowdown mostly reflected the impact of Beijing's retaliatory tariffs on U.S. exports, including soybeans. Farmer's front-loaded shipments to China before the tariffs took effect in early July, boosting second-quarter growth. Since then, soybean exports have declined every month, increasing the trade deficit.

Imports increased a little bit faster in the third quarter than previously estimated while the drop in exports was much sharper, leading to an even wider trade gap, which sliced off 1.91 percentage points from GDP growth in the third quarter, instead of the 1.78 percentage points reported last month. That was the most since the second quarter of 1985.

The rebound in imports was partially driven by strong domestic demand and also reflected a rush by businesses to stockpile before U.S. import duties, mostly on Chinese goods, came into effect late in the third quarter.

Imports subtract from GDP growth. But some of the imports likely ended up in warehouses, adding to the stockpile of inventory, which contributed to GDP. Inventories increased at an $86.6 billion rate, instead of the $76.3 billion rate estimated in October.

As a result, inventory investment added 2.27 percentage points to GDP growth. That was more than the 2.07 percentage points reported last month and was the biggest contribution since the fourth quarter of 2011.

Growth in consumer spending increased at a 3.6% rate in the third quarter, down from the 4.0 percent rate estimated in October.

Business spending on equipment increased at a 3.5% rate, instead of the previously reported 0.4% rate. That was still the slowest pace in two years.

Activity in the currency market is rather subdued at the end of the month, with EUR/USD remaining weak and apparently unable to make much upward progress. The debate on US tariffs heating up again ahead of the G20 meeting and the fall seen yesterday in both the French and Italian confidence indicators did not help sentiment.

The modest decline in the US consumer confidence, which was in line with consensus, was also used as an excuse to drag the pair briefly below 1.1300 and start testing more downside potential towards the lows of recent weeks at the edge of 1.1200.

Today’s agenda is of little help again, as the most relevant data and events are confined to the late afternoon with Fed Chair Jerome Powell’s speech. This comes after rumors circulated last week that the Fed may be considering a pause in its hiking strategy as early as next spring and with markets already scaling back expectations of heavy Fed tightening next year, as indicated by the US forward curve. However, ahead of next week’s testimony before the joint economic committee of the US Congress, Powell is unlikely to offer sufficient news on monetary policy to impact the US dollar significantly.

EUR/USD closed below the 1.1314 Fibonacci level on Tuesday, a 61.8% retrace of the 1.1216 to 1.1472 November recovery and has broken below the 1.1276 Fibonacci level (76.4%) on Wednesday. The odds are growing for an eventual drop to the 1.1216 2018 low, which will heighten with a daily close below the 1.1276 Fibo.