Across-the-Board Dollar Losses
March 17, 2016
Today’s market focus has been on central bank policies.
- The FOMC cited global developments and a downwardly revised perception of the longer term neutral interest rate level to justify only around two likely interest rate hikes in 2016 and a lower federal funds rate path throughout the forecast period.
- The Bank of Norway, Norges Bank, cut its key interest rate by 25 basis points to a record low of 0.50% and indicated that the rate could eventually fall to zero.
- The South African Reserve Bank’s key policy interest rate was raised another 25 basis points to 7.00%, noting upside inflation risks and likely above-target inflation for a protracted length of time. In January, the rate had been hiked by 50 basis points.
- Bank Indonesia reduced the central bank interest rate by 25 basis points to 6.75%. There were also cuts of that amount in each of this year’s first two months.
- The Bank of England left its policy settings unchanged by a unanimous vote but noted that over the whole length of the forecast period, a rate increase is more likely to happen than not. The Bank Rate has been 0.50% since March 2009. The asset purchase program’s ceiling remains at GBP 375 billion, a level reached late in 2012.
- A quarterly review of Swiss monetary policy left settings unchanged. The Swiss National Bank has a target interest rate range of negative 1.25% to negative 0.25%, and a point sight deposit rate of -0.75%. Officials will continue to intervene fairly actively against what is still considered a significantly overvalued franc. 2016 inflation and growth forecasts were revised lower.
- The Bank of Serbia’s key interest rate was left unchanged at 4.25%. The most recent rate change was a 25-basis point cut in February despite above-target inflation. Officials expect inflation to return to target late this year or by early 2017.
- Chile also has a central bank policy meeting today.
Compared to closing levels on Wednesday, the dollar has declined 1.4% against the pound, 1.3% versus the kiwi, 0.9% relative to the yen, Swissie and loonie, and 0.85 vis-a-vis the Aussie dollar. There have been substantial losses against emerging market currencies like the Chinese yuan, South African rand, and Brazilian real.
U.S. stocks are moderately up. Japan’s Nikkei-225 slipped 0.2%, while the Chinese and Aussie stock markets closed 1.2% and 1.0% higher. The German Dax is 1.1% lower. The British Ftse is little changed.
West Texas Intermediate crude oil leaped 3.4% to $39.76 per barrel, and Comex gold edged up 0.2%.
Ten-year sovereign debt yields are down six basis points in Britain and a single bp in the United States but up 3 bps in Japan.
Lots of U.S. economic data were released.
- The current account deficit narrowed to $125.3 billion in the fourth quarter from $129.9 billion in 3Q. The 2015 deficit of $484.1 billion was 24.3% greater than the 2014 deficit of $389.5 billion.
- The leading and coincident indices of leading economic indicators each edged up 0.1% in February.
- New jobless insurance claims last week rose 7K to 265K, but the four-week average of 268K was down from 273.25K in the prior four weeks to February 13 and even further below the average of 285K in the four weeks to January 16.
- The Labor Department JOLTS monthly report of job openings, hires, and separations strengthened in the first respect during January, but the readings for hires and separations showed smaller improvement.
- The Philadelphia Fed manufacturing index improved 15.2 points to a 13-month high of +12.4 in March.
Japan’s customs trade balance recorded a JPY 243 billion surplus last month versus a JPY 426 billion deficit in February 2015, as exports dropped 4.0%, while imports sank 14.2%. The seasonally adjusted surplus more than doubled to JPY 166 billion, but both exports and imports posted month-on-month declines.
Foreign direct investment in China was 1.7% higher than a year earlier in February after a 3.2% January advance.
Switzerland’s PPI/import price index was 4.6% lower in February than a year earlier.
Australia’s unemployment rate fell 0.2 percentage points to 5.8% in February, returning to the level in November and December. But jobs edged up just 0.3K, versus expectations of a 13-14K increase. And labor participation fell 0.2 percentage points to a 5-month low of 64.9%.
Real GDP in New Zealand grew 0.9% in 4Q, matching the 3Q outcome. Growth in the first two quarters of 2015 had been just 0.3% apiece. Net exports exerted a drag in the latest quarter. GDP was 2.3% higher than a year earlier.
Euroland’s seasonally adjusted trade surplus narrowed to a 3-month low of EUR 21.2 billion in January. Exports (-1.9%) and imports (-1.3%) were both lower than in December.
CPI inflation in the eurozone swung from +0.3% in January to -0.2% in February. In the year to February 2015, consumer prices had dropped 0.3%. Core inflation was 0.8% in February versus 1.0% in January and 0.7% in February 2015.
Copyright 2016, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: FOMC, foreign exchange, U.S. current account