Dollar Slinks to Another 32-Month Low and Several Central Banks Leave Interest Rates As Is
December 17, 2020
The DXY trade-weighted dollar index fell below 90 to as low as 89.79. Overnight losses occurred across of broad cross-section of key bilateral dollar relationships amounting to 0.9% versus the kiwi, 0.8% relative to sterling, 0.7% versus the Australian dollar, 0.5% against the yen and euro, 0.3% vis-a-vis the Canadian dollar, and 0.2% versus the Swiss franc.
The lame duck U.S. Treasury belatedly released an updated Macroeconomic and Foreign Exchange Policies of Major Trading Partners of the United States. This reported made news in that two countries — Switzerland and Vietnam — were slapped with the designation of “currency manipulator.” This technical term requires that three specific conditions all be met and gives the president extra powers to impose retaliatory measures.
The ten-year German bund yield fell two basis points overnight, while its U.S. and British counterparts each eased one basis point. Among commodity prices, gold and oil advanced 1.4% and 0.7%. Bitcoin’s soaring price moved past $23k to $23,137.
Share prices today rose 1.3% in New Zealand, 1.2% in Australia, 1.1% in China, 0.8% in Hong Kong, and so far show gains of 0.4-0.9% in France, Italy, Germany and Switzerland. U.S. stock futures are up about 0.5%.
Several central bank authorities announced the results of policy reviews today with similar themes surrounded by persistent pandemic-driven uncertainty. Covid cases and deaths are picking up pace, but hope has emerged as vaccine distribution begin to roll out. Officials warned that it will be quite some time before pre-pandemic conditions are approached. Sustaining growth in this period is a higher priority than containing inflation.
The Bank of England’s base rate was left unchanged at 0.10%, its level since two cuts last March totaling 65 basis points. A released statement also made no changes to the bank’s asset purchase program, leaving the ceiling on total holdings at GBP 895 billion. Growth has slowed since summer and will take a hit in the next couple of months from tightened Covid restrictions. But the longer-term British outlook has improved with the rollout of vaccines.
Swiss National Bank President Jordan explicitly indicated that being labeled a “currency manipulator” by the U.S. Treasury will have absolutely no impact on Swiss interest rate and exchange rate policies. At today’s quarterly policy review, the deeply negative policy interest rate (-0.75%) was retained, and the formal statement promised to intervene “more forcefully” and revised downward projected CPI inflation for the coming year. Although the drop of Swiss GDP in 2020 is now not expected to exceed 3%, CPI inflation this quarter is more negative than assumed previously. Officials expect inflation to average zero percent next year, 0.2% in 2021, and no more than 0.5% through the autumn of 2023. Quantitative stimulus is deemed ineffective in the Swiss economy, and significant FX intervention must continue to stave off worsening deflation.
No change was made in Indonesia’s central bank interest rate structure. After earlier reductions of 25 basis points each in February, March, June, July and November, the 7-day reverse repo rate stands at a record low 3.75%. Indonesian growth was hit by Covid, and inflation is sufficiently low and a smaller concern than the need to build recovery momentum. An accommodative monetary policy and macroprudential stance will continue to be pursued.
At the Central Bank of the Republic of China (Taiwan), the discount rate was left unchanged at 1.125%, its level since this year’s single 25-basis point reduction made in March. A released explanation of today’s decision projects moderate growth next year, somewhat higher inflation, and tame expected inflation. An accommodative monetary stance is appropriate in light of lingering uncertainties surrounding the global recovery.
Reductions this year between February and November in the Filipino central bank policy interest rate totaled 200 basis points to the current level of 2.0%. Inflation is benign with risks skewed to the downside. The pandemic and depressed growth warrant a continuing very accommodative monetary stance, but no further rate cut was made at the final scheduled review of 2020.
Officials at the Bank of Norway likewise left their zero percent policy rate as is. The decision was made unanimously. Earlier this year, there were two cuts totaling 125 basis points in March and a third 25-bp reduction in May to the current level, which officials expect to be maintained for “some time” longer. Not until the second half of 2022 do they expect gradual rate increases to ensue. Inflation current exceeds target but is likely to subside, and supporting recovery in jobs and activity are the priority now, according to a statement.
At the Czech National Bank, the two-week repo rate was kept steady at 0.25%, its level after three reductions totaling two percentage points between March and May. In a released statement, officials “assessed the risks and uncertainties of the forecast in the context of the ongoing second wave of the pandemic as remaining very substantial.” Covid’s second wave has not affected growth as much as the first wave, and economic trends have been decently aligned with forecasts made in November.
For a second straight week, U.S. jobless insurance claims rose and significantly exceeded analyst expectations. The latest rise in new claims was 885k, compared to 716k two weeks earlier. Separately, the Commerce Dept reported a 1.2% rise of housing starts to a 3-month high in November and a 6.2% advance in building permits to its best level in more than a year.
The French business climate index rebounded sharply to a reading of 91 in December after dropping 11 index points to 79 in November. The pre-pandemic level last February was 101. Service sector confidence jumped 12 points to 90 this month, but manufacturing edged only one point higher to 93.
Consumer price inflation in the euro area last month was confirmed at the preliminary estimate of 0.3% overall, matching the level in the prior two months which also represents its lowest point since April 2016. Core inflation of 0.2% constitutes a record low and compares to 1.3% in November 2019.
Australian unemployment dropped unexpectedly to 6.8% in November, a 3-month low. The latest month’s recovery in jobs, 90k, was only half as much as seen in October. Australian new home sales soared 15.2% last month.
In New Zealand, real GDP rebounded 14.0% in the third quarter, a tad more than forecast. GDP was also 0.4% greater than a year earlier after climbing 2.3% in the previous four-quarter interval. New Zealand’s current account deficit over the four quarters through 3Q 2020 equaled just 0.8% of GDP, down sharply from a deficit averaging 3.6% of GDP a year before.
Belgian consumer confidence improved to a 9-month high in December.
Copyright 2020, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: Bangko Sentral Ng Pilipinas, Bank Indonesia, Bank of England, Bank of Norway, Central Bank of China (Taiwan), Czech National Bank, Swiss National Bank
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