US GDP data has impressed this afternoon, revealing that the
world’s number one economy grew by 2.0% in the third quarter, ahead of market
expectations in the 1.8 -1.9% area. This is just a preliminary reading but good
news nonetheless.
A temporary surge in defence spending appears responsible for the
figure’s stronger than expected showing, though this is unlikely to be
sustained. What is good to see is that conditions in the US housing market are improving,
as is consumer spending. We know that the US labour market is also seeing some progress, though data next Friday will reveal whether last month's improvements were a flash in the pan.
On the downside, US business investment is on the wane for the
first time since Q1 2011. This really does suggest that concerns over the US
fiscal cliff, which could do as much as halve US growth next year, are weighing on
US confidence.
The UK economy grew by 1.0% in Q3, according to preliminary data
released yesterday. This was considerably better than expected and triggered a
much more noticeable reaction in the FX markets, with sterling making
impressive gains as a result. The dollar has failed to capitalise on today’s data; it has
had the effect of lifting market confidence and reducing demand for the
safe-haven dollar. Nonetheless, the dollar has had a strong week regardless and we
maintain a pretty rosy outlook for the greenback. The next big event, as far as
the US is concerned, is the Presidential election result. The jury is out over
whether a red or a blue victory would be best/worst for the greenback.
Richard Driver
Currency Analyst
Caxton FX
