And the Dollar Downbeat Goes On

September 16, 2020

FOMC Day in America finds the dollar struggling to tread water. The U.S. currency slipped further to a 16-month low against the Chinese yuan and a 7-week low relative to the yen and is hovering near a 5-year low against the Swiss franc and a 2-1/2 year low against the euro. Overnight losses in the dollar were led ironically by sterling, which on this 28th anniversary of Black Wednesday when selling pressure overwhelmed the pound and forced U.K. officials to abandon the EEC exchange rate mechanism. Sterling rose 0.8% overnight, and the dollar also lost 0.6% versus the kiwi, 0.5% relative to the Australian dollar, 0.4% vis-a-vis the Mexican peso, 0.3% against the yen and 0.2% versus the loonie, euro and Swiss franc.

The United States is battling natural disasters as well as the relentless Covid-19 virus. Hurricane Sally slammed Alabama as a Category 2 storm and expected to produce massive flooding there. The West Coast remains enveloped with hazardous air quality conditions from wildfires. Over 1000 Covid deaths occurred in the  past 24 hours, and the case count surpassed 6.75 million. But President Trump maintained a vaccine may be approved within a month.

U.S. retail sales monthly growth slowed to 0.6% in August, hampered by Covid-fearful shoppers. Analysts were anticipating a more robust report. U.S. mortgage applications fell 2.5% last week.

The price of West Texas Intermediate crude oil jumped 2.2%, and that of gold is 0.3% higher. 10-year sovereign debt yields are marginally lower in Germany, Great Britain and the United States.

Share price movements in the Pacific Rim and Europe have been comparatively muted. Equities closed 1.0% higher in Australia but down 0.8% in Indonesia and 0.4% in China. The German Dax and Japanese Nikkei are pretty flat on balance.

The quarterly OECD economic forecasts show upwardly revised growth forecasts for 2020. Officials in the Paris-based institution now project a GDP drop of 4.5% versus the 6.0% slide projected back in June. Projected contractions of 3.8% in the United States, 7.9% in the euro area, 5.8% in Japan and Canada, 6.3% in Brazil, and 10.1% in Great Britain were each smaller than previous forecasts, plus China is not forecast to show positive growth of 1.8% in 2020 rather than a decline of 2.6%. India’s outlook has deteriorated under the weight of an  intensifying Covid infestation there. The OECD had projected that Indian GDP would fall 3.7% back in June but now anticipates a plunge of 10.2% in 2020.

Japan’s customs trade balance swung from a deficit of JPY 152 billion in August 2019 to a surplus last month of JPY 248 billion due to a lessening on-year decline in exports. In seasonally adjusted terms, the surplus increased to JPY 351 billion in August from JPY 41 billion in July due to a 5.9% jump in exports but just a 0.1% rise in imports. Until June, the seasonally adjusted trade position had been in deficit, including JPY 925 billion in April.

Euroland’s seasonally adjusted trade surplus widened 27% on month to a 4-month high of EUR 20.3 billion in July. Even so, the year-to-date surplus of EUR 113.0 billion was EUR 6.3 billion smaller than the surplus in January-July of 2019.

British consumer price inflation dropped 0.8 percentage points to a 56-month low of 0.2% in August. Core CPI was halved to 0.9%. Producer output price deflation stayed at -0.9% for a third straight month, and producer input prices were 5.8% lower than in August 2019.

The post-covid revival of retail sales in South Africa halted abruptly in July. Following jumps of 68.7% in May and 6.4% in June, such fell 1.1% and also recorded a larger year-on-year decline of 9.0% in July.

The Westpac index of Australian leading economic indicators rose 0.5% in August, its biggest monthly advance of the 21st century. Also new home sales rebounded from July’s 10.9% plunge with a 3.6% advance in August.

New Zealand’s current account swung from a NZD 1.03 billion deficit in the second quarter of 2019 to a NZD 1.828 billion surplus last quarter. The surplus in seasonally adjusted terms was the largest in nearly 50 years.

Czech producer price deflation widened to a 3-month high of -0.5% in August.

Canadian total CPI inflation held steady in August at 0.1%, while core CPI rose by 0.1 percentage point to 0.8%.

Poland’s central bank officials left their reference interest rate unchanged for a fourth consecutive policy review at 0.1%. In a released statement, officials noted that the economy continues to struggle with the effects of fighting the Covid pandemic but expressed hope that earlier rate cuts of 25 basis points in March, 75 bps in April and 40 bps in May will promote economic recovery going forward.

Today’s policy decision in the United States of the Federal Open Market Committee at 14:00 EST (18:00 GMT) will be accompanied by updated macroeconomic forecasts and followed by a press conference given by Fed Chairman Powell. At the U.S. stock market open today, the Dow initially crossed above the 28,000 level.

Copyright 2020, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

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