US: Macro-economic backdrop a USD positive - MUFG

The DXY has corrected a little lower, by about 0.7%, since peaking on 24th November but based on the current DXY level is set to close out November up 2.6% after posting a 3.1% gain in October as noted by the Derek Halpenny, European Head of GMR at MUFG.

Key Quotes

“Trump explains much of the November move of course but the pre-election gains also reflect the fact that the US economy was looking more impressive with much more resilient growth anticipated after subdued growth in the first half of 2016.”

“That has been essentially confirmed again with the revised real GDP data for Q3 revealing growth of 3.2% Q/Q in Q3, up from the previous estimate of 2.9%. Crucially for the markets in terms of determining the direction of the economy going forward, the breakdown revealed the greater strength was down to consumer spending. Real personal consumption grew at 2.8% from an original estimate of 2.1%. The increased consumer spending explained all of the upward revision with inventories adding less to overall growth. The Atlanta Now GDP estimate for Q4 currently stands at 3.6%.”

“If that was confirmed in Q4, real GDP growth in H2 would be the strongest twoquarter period of growth since Q2 and Q3 2014. The data comes ahead of today’s ADP employment report and of course Friday’s Non-farm payrolls and most data points indicate the US jobs market if anything has strengthened again. A tighter labour market is now placing upward pressure on wages and our own internal model on future wage growth in the US indicates annual wage growth of about 3.0% by the middle of 2017.”

“That improved confidence was clear to see from the US consumer confidence report yesterday – the overall index hit a new cyclical high – the 107.1 level is now actually approaching the high from the previous economic cycle prior to the Great Financial Crisis. The Present Conditions Index – which correlates well with the U3 unemployment rate also hit a new high and suggests an ongoing improvement in the labour market. Covering a decade of data, the Present Conditions Index suggests a further move lower in the unemployment rate. The Beige Book will be released this evening by the Federal Reserve and should contain positive assessments on the momentum in the economy.”