Dollar Falls Broadly Except Against Sterling

February 2, 2017

The dollar lost 1.2% against the Australian dollar, 0.8% relative to the euro, 0.7% vis-a-vis the yen, 0.5% versus the kiwi, 0.6% against the Mexican peso, 0.4% relative to the Swissie, and 0.3% versus the loonie.

  • The Aussie dollar was lifted by report of a much greater-than-forecast A$ 3.51 billion Australian trade surplus in December, up from a A$ 2.04 billion surplus in November and a A$ 733 million deficit in October. The Australian currency also reacted to President Trump’s complaint over an Aussie-U.S. trade deal made by the Obama administration. The agreement will be honored, but relations between the two traditional close alliesĀ have become unusually strained.
  • The dollar weakened generally on disappointment that the FOMC statement didn’t augment the urgency attached to normalizing its interest rates.
  • The euro strengthened in spite of comments in the released ECB Bulletin that officials at that central bank view the recent acceleration of inflation as transient and fail to see a meaningful uptrend developing yet in core Euroland inflation. Trump’s main trade adviser considers the euro “grossly undervalued.”
  • Released Ezone producer price data for December today showed a 0.7% on-month increase, powered by a 2.1% upsurge in energy, while other components of the index collectively rose by 0.3%. On-year producer price inflation jumped to 1.6% in January from 0.1% in December, thanks to a 3.9% 12-month advance in energy.
  • Japan reported a further rise in consumer sentiment during January to a 40-month high of 43.2. The low mark during 2016 was at 40.1 in February.
  • Swiss retail sales in December were quite disappointing, dropping in volume terms by 2.4% on month and 3.5% on year.

Sterling bucked the general downtrend of the dollar today, falling 0.6%. The Bank of England not only left policy settings unchanged as had been expected, but released a dovish statement making the case for a more gradual response to rising inflation, which officials expect to soon move above the 2% target, peak around 2.8% in the first half of next year and not settled back to 2.0% until sometime in 2020. Sterling weakness is natural and appropriate given plans to leave the EU, and fighting inflation due to the depreciation only would put more downward pressure on income and wage growth.

China’s market remained closed one final day for the Lunar New Year, but all other markets in Asia were open.

Japan’s Nikkei closed down 1.2%. Stocks also fell 0.8% in Singapore, 0.6% in Hong Kong, and 0.5% in South Korea. European equities are mixed. High debt countries like Greece, Italy and Spain experienced share price rises, but stocks in Germany and Switzerland are off 0.1% and 0.6%.

The ten-year German bund and British gilt yields slipped by two and three basis points, but the 10-year Japanese JGB rose two bps and at 0.10% is at a new high for the period since the Bank of Japan announced a target of “around zero percent.”

Comex gold rallied another 1.3% to $1,223.5 per ounce.

West Texas Intermediate crude oil got new support from unexpectedly high U.S. inventories in the weekly data reported yesterday.

More purchasing manager surveys from January were published.

  • Britain’s construction PMI fell 2.0 points to a 5-month low of 52.2.
  • The Vietnamese manufacturing PMI declined 0.5 points to 51.9, lowest since October.
  • From a 68-month high in December, Taiwan’s manufacturing PMI slid 0.6 points to a 2-month low of 55.6.
  • But Malaysia’s manufacturing PMI rose 1.5 points to a 4-month high of 48.6.
  • Lebanon’s private PMI rose 0.7 to 47.7, best in 14 months.
  • All these surveys reflected intensifying input price inflation.

Australian building permits sank 1.2% in December, depressing the on-year rate of decline to 11.4%.

Growth Japan’s monetary base slowed further to 22.6% from 23.1% in December, 25.8% in the third quarter of 2016, 25.0% in 2016 as a whole, and 34.0% in 2015.

Reflecting Bank of Japan quantitative stimulus, the central bank’s balance sheet grew to JPY 482 trillion at end-January from JPY 476.3 trillion at end-2016.

Like the Bank of England, the Czech National Bank completed its first policy review of 2017 by deciding not to change its accommodative settings, a 0.05% two-week repo rate and an asymmetric foreign exchange policy that uses intervention to prevent the koruna from strengthening beyond the 27 per euro level. Those settings for the interest rate and currency have been in place since November 2011 and November 2012, respectively.

In the year to January, consumer prices rose 0.5% in Cyprus, their first on-year increase since late 2014, and by 2.0% in South Korea, up from 1.3% in December. Romanian producer prices climbed 0.9% between end-2015 and end-2016.

U.S. economic data releases today are weekly jobless insurance claims and quarterly unit labor costs and productivity. The monthly IBD/TIPP Optimism index is also due.

Copyright 2017, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

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