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US Dollar Climbs as a Safe-Haven

Miguel A. Rodriguez
Miguel A. Rodriguez
09 August 2023

Economic data from China yesterday revealed that the second-largest economy in the world suffered losses both in terms of exports and imports for the month of July. This influenced some European stocks and news that Moody’s lowered the US credit rating of the country’s regional banks brought about a drop for some of these banks. 

The big news yesterday was the commercial data from China  

Yesterday saw significant losses on both the European and North American stock markets, primarily due to the commercial data from China.  

The second-largest economy in the world and the engine of the Asian economy, had severe drops in exports (-14.5%) and imports (-12.4%) in the month of July. This implies that the economy is continuing to deteriorate and will have an impact on global growth.

The weakening of China is directly felt in Europe, particularly in Germany, which is one of the nations most impacted by the slowdown in Chinese imports. Yesterday, the DAX index lost about 1.50%.

Moody’s lowered the credit rating of the country’s regional banks

More daunting news came from the US yesterday when Moody’s cut the credit rating of the nation’s regional banks and also announced that they are keeping an eye on some of the bigger banks.   

The panic spread to other national banks, including Bank of America, which dropped almost 3%, and Wells Fargo, which lost 2.5% after the news came out. The KRE ETF representing regional banks lost about 2.60%.

All of this resulted in a more than 1% decline in the major North American indices, with the Nasdaq leading the decline and returning to its levels from one month earlier.

US Dollar strengthened as a safe haven

As a result, investors chose safe-havens like US Treasury bonds, whose yield decreased by 5 to 8 bps in the long and medium parts of the curve, during this typical risk-aversion session.  

The US Dollar continued to rise notwithstanding these decreases in market interest rates (bond yields) brought on by the purchase of safe haven bonds.  

Interest rates and the US Dollar typically move in parallel, but this time speculators also purchased US Dollars as a haven, sending EUR/USD down about 50 pips to the 1.0940 region.

Investors await the release of the Consumer Price Index (CPI) tomorrow

Investors will continue to pay close attention to upcoming developments concerning the state of US banks and, particularly, to China's economic data. All of this is taking place before tomorrow's release of the CPI for the United States, the most important economic data point of the week that will provide hints about the Federal Reserve's impending monetary policy choices. 

DMO 9.8.2023 graph.png

Germany40 DAX monthly chart August 9, 2023. Sources: Bloomberg, Reuters.

Key Takeaways

  • Data from China showed both imports and exports were down for July
  • North American and European stock markets felt losses yesterday
  • Moody’s lowered its credit rating of US regional banks
  • Some banks lost share value on the news
  • The market in general was prone to risk aversion
  • Bonds and the US Dollar were bought as safe havens
  • Investors look to the release of the US CPI tomorrow

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Miguel A. Rodriguez
Miguel A. Rodriguez

Miguel worked for major financial institutions such as Banco Santander, and Banco Central-Hispano. He is a published author of currency trading books.