The U.S. Dollar rallied overnight after economic figures fell in line with expectations. GDP figures out of the U.S. indicated a steady rate of growth. Personal Income also met its forecast of 0.2% expansion while Personal Spending stayed put at 0.0% for the month of August.
Overall, it is clear that data is painting a positive picture of ongoing improvement in America as the rest of the world struggles. The USD’s current appreciation is also due to its safe-haven status as global equities are feeling the burn of Deutsche Bank’s troubles.
Commercial banks’ shares were having their best quarter in 18 months prior to the scandal at Deutsche and issues at Commerzbank AG. Stock indexes are down all across the board as the happy ambience from the OPEC production-cut agreement faded resulting from growing concerns over instability in European banking. Bonds are gaining popularity as low-risk assets with German yields at their lowest level since July.
Also aiding the “buck’s” appreciation is the Fed’s beloved inflation measurement, the Personal Consumption Expenditures Deflator, which expanded by 1.0% over the estimated 0.9%.
Sterling fell following underwhelming data for the second quarter of the year, adding to the Pound’s woes. The UK current account deficit increased to GBP 28.7 billion showing that exports are down even as Pound has lost value significantly.
Brexit did not cause the immediate problems to the economy many feared, but political disagreements domestically and with the rest of the EU are fomenting doubt in the business as well as banking sectors. Long-term growth is at a high risk, especially if companies start departing with employment opportunities and physical capital elsewhere. GBP lost 3.6% of its value in September.
The common currency is dealing with quite a mess. Although countries on the periphery have been known to be trouble-bound for almost a decade, market participants are now worried about Germany. The largest economy in the EU is facing many challenges as some of its marquee companies in banking and auto-manufacturing are heading downward.
What is occurring is a bit of a trickle-down effect, where these large firms are negatively impacting the growth prospects of smaller businesses around the continent. EUR is 1.3% lower from its peak reached around the start of the month.