Dollar Slide Accelerates Against Several Key Currencies
January 12, 2018
The dollar dropped overnight by 0.9% against the euro, 0.7% relative to the yuan and sterling, and 0.5% versus the Swiss franc and Mexican peso. The catalyst for this accelerated decline was a tentative political plan in Germany between the center-right Christian Democrats and center-left Christian Socialists to form a new “grand coalition.” Those two main parties, the CDU-CSU and the SPD, collectively lost 105 seats in last autumn’s election but still command a majority 417 of the Bundestag’s 704 seats. In the election, the political center had been outflanked by extreme groups on the left and right, and the coming reconstitution of a grand coalition has been possible because of the shared willingness of the two centrist parties to address the grievances that were raised in the election on immigration and other matters. Angela Merkel would remain chancellor.
Germany’s less worrisome political situation in the wake of this deal was more of an excuse than a prime mover of the faltering dollar. The ECB and BOJ seem to be backing away from full-bore stimulus, even as prospects for the U.S. treasury market worsen due to a larger deficit outlook and China’s seeming desire to diversify further away from U.S. assets. Higher U.S. inflation also seems more plausible. Consumer price data are due shortly.
Not all currencies rose at the dollar’s expense overnight. The dollar lost just 0.1% against the yen and loonie, climbed 0.2% relative to the Aussie dollar and stayed flat vis-a-vis the kiwi.
Share prices in the Pacific Rim rose 1.2% in Hong Kong, 0.7% in Taiwan and 0.3% in India but slipped 0.3% in Indonesia and 0.2% in Japan and New Zealand. Equities in Europe are up marginally (mostly by 0.3% or less).
WTI oil, which had rallied to a near 3-year high earlier in the week, settled back 0.8% to $63.28 per barrel. Comex gold, which often moves inversely with the dollar, went up 0.8% to $1,332.40 per troy ounce.
Ten-year British gilt and Japanese JGB yields are a basis point firmer. So is the U.S. 10-year Treasury yield in early futures trading.
China’s trade surplus ballooned to a 23-month high of $54.69 billion in December versus $40.21 billion in November and $40.4 billion a year earlier. On-year growth in exports of 10.9% was twice that of imports (4.5%).
Chinese new yuan bank lending of CNY 584 billion last month was the lowest total since April 2016 and sharply below November’s CNY 1.12 trillion total and market expectations. M2 money growth of 8.2% in December , down from a 9.1% on-year pace in November, also fell well short of forecasts. Central bank officials have been clamping down on debt.
Japan’s current account surplus in November of JPY 1.347 trillion was a bit more than 25% smaller than expected. The seasonally adjusted current account surplus of JPY 1.7 trillion was 30.3% narrower than October’s figure.
Japanese bank lending growth slowed to 2.6% in the final quarter of 2017 from a 3.1% on-year increase posted in 3Q.
Japan’s economy watchers index registered a current index of 53.9 in December, down from 55.1 in November but above the October level. The economy watchers outlook diffusion index dropped 1.1 points to a 3-month low of 52.7.
Officials at the Central Reserve Bank of Peru sliced another 25 basis points off of their policy interest rate to 3.0%. They have lately been doing this at alternate monthly policy reviews.
A 10.8% rebound in New Zealand building permits in November after October’s 10.4% plunge was the biggest month-on-month rise since February.
Spanish CPI inflation slowed from 1.7% in November to 1.1% last month. Hungarian CPI inflation decelerated 0.4 percentage points (ppts) to 2.1% in December, and the Swedish CPI pace dipped 0.1 ppt to 1.9%. Greek CPI inflation slowed 0.1 ppt to 1.0% in harmonized terms.
French CPI inflation remained steady in December at 1.2%, while Romanian CPI inflation edged up to 3.3% from 3.2%.
Italian industrial production was flat on month in November, depressing the 12-month rate of increase to 2.2%.
Just In: U.S. consumer prices edged up by an as-expected 0.1% and were associated with a 0.1 percentage point dip in the 12-month rate of increase to 2.1%. However, core CPI inflation of 0.3% on month and 1.8% on year was 0.1 percentage point higher than forecast by the market. Moreover, real hourly earnings growth from a year earlier doubled to 0.4%. And retail sales grew 0.4% both overall and excluding motor vehicles and parts. The latter was a shade better than expected and left core sales in September-November 5.7% higher than a year earlier. These data collectively support the recent rise of U.S. long-term interest rates and will not impede Fed officials from continuing a gradual increase in the federal funds rate target.
Copyright 2018, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: Chinese trade and money growth, German coalition talks, Japanese current account, U.S. CPI