Daily Market Update

Long-Term Investment Improves in the US; Buck Appreciates

September 27, 2017

The U.S. Dollar is having its best week of the year as the currency got a boost from Fed confidence and good economic indicators.

USD

The U.S. Dollar is having its best week of the year as the currency got a boost from Fed confidence and good economic indicators. The typically gloomy Durable Goods Orders figures for the month of August revealed an expansion of 1.7% over the expected 1.0%, a welcome change from the severe contraction from the month prior.

Numbers for July were upwardly revised and excluding transportation data, orders grew by 0.2% as estimated. Pending Home Sales figures are slated for release at 10AM with a foreseeable contraction of (-0.5%), but potential is there for keeping the greenback afloat.

Yesterday’s speech by Fed Chairwoman Janet Yellen, improved the chances of a hike by the end of the year to 70.0%. She said it would not be prudent to delay a hike as she strongly believes that inflationary growth will pick up soon. Structurally, the economy is changing, but it is still growing at a satisfactory rate and is looking to get an injection from tax reform and other expansionary fiscal measures. The Bloomberg Dollar Spot Index is now at a six-week high.

 

EUR

The Euro keeps falling because of global concern over the achievements by far-right political movement Alternative for Germany in the general German elections. The Socialist Democrats, who for years have allied themselves with the ruling Christian democratic Union, Merkel’s party, have vowed to be in opposition as their party reflects on a failing platform that lost them seats in the legislative chamber.

As a result, Merkel will need to cooperate with demands from minority parties that seek a Germany less involved with financially fixing the ailments of other EU members, such as Greece and its bailouts.

Naturally, traders are concerned that the dominant Merkel regime of integration at any cost will not suffice in her new political reality and the Germans may be less willing to work hard for the rest of the continent as seen in recent years. This bodes poorly for the Euro as economists digest the rise of anti-establishment parties that could have a larger impact in Italian elections and other susceptible nations with less economic prowess.

 

GBP

The Pound is not losing ground as fast as the euro against the dollar, but Brexit anxiety is growing and affecting the currency. After initially surging because of optimism in the Bank of England, the economic consequences of poor negotiations are weighing on Sterling.

Pension and liability payments owed to the EU might grow and the bill that will need to be settled prior to the creation of a new trade agreement is ticking higher as details emerge in the talks. Remember that the EU has to set a punitive tone in order to not incentivize other nations in following Britain’s path.

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