Significant Drop in Dollar and Yen

October 12, 2011

The dollar is unchanged against the yen but down by 1.8% against the kiwi, 1.7% versus the Australian dollar, 1.3% relative to the Swissie, 1.2% against the loonie, 1.1% against sterling and 1.0% vis-a-vis the euro.  By a 63-35 vote, the U.S. Senate approved the Currency Exchange Rate Oversight Reform Act of 2011 that if passed by the House and signed by President Obama would sanction punitive tariffs on imports of Chinese goods.  Chinese officials fixed the yuan at a softer 6.3750 per dollar today.

Slovakian parliamentarians rejected the July 21 accord to enlarge the EFSF, but a second vote later this week is likely to pass.  Slovakia would be the last of 17 countries to ratify the agreement.

Investors are showing a greater appetite for risk.  Besides the weaker dollar and yen,

  • Equities rose 3.6% in China, 3.0% in Indonesia, 2.6% in India, 1.7% in Singapore, 1.0% in Hong Kong, 0.8% in South Korea and Thailand and 1.2% in Malaysia.  Stocks slid 0.6% in Australia and 0.4% in Japan but show gains so far of 1.6% in Germany and France and 0.7% in Great Britain.
  • Ten-year German bunds and British gilts firmed six and four basis points.  Yilelds also rose on U.S. Treasury futures.
  • Gold and oil advanced by 1.5% and 0.5% to $1685.80 per ounce and $86.27 per barrel.

Euro area industrial production data produced a huge positive surprise.  Output in August jumped 1.2% on top of a 1.1% increase in July.  Analysts had predicted a drop of more than 0.5%, since German output had fallen 1.0%.  Production grew 8.2% in Portugal, 4.4% in Ireland, 4.3% in Italy, 1.3% in Spain, and 0.6% in France.  Output was 6.3% higher than in August 2010, and the July-August level surpassed the 2Q mean by 1.3%.

Core private Japanese machinery orders jumped 11.0% in August, almost three times faster than forecast, more than reversing an 8.2% contraction in July.  Foreign machinery orders soared 32.3% on month and 10.0% on year.  Japanese machine tool orders in September were 20.3% higher than a year before.

British labor statistics were released.  The claimant unemployment count rose 17.5K in September, which was not as much as forecast, but ticked up to 5.0% of the labor forces from 4.9%.  Wage earnings growth slowed in August with and without bonus pay.  The ILO gauge of the jobless rate advanced to 8.1% in June-August from 7.7% in March-May and 7.8% in December-February.  Britain’s index of leading economic indicators fell 0.5% in August, while the coincident index was unchanged.

France’s current account deficit of EUR 2.9 billion in August was 24% narrower than the shortfall in August.  French consumer prices slid 0.1% in September and posted an unchanged 2.2% 12-month rate of increase, which was lower than forecast.

German wholesale prices rose 0.3% in September, trimming the on-year pace to 5.7% from 6.5% in August and a 2011 high of 10.9% back in March.  The continuing decline of wholesale price inflation occurred despite sharp gains in oil product prices of 1.6% on month and 17.0% on year.

Australian home and investment loans increased by 1.2% and 1.8% on month in August.  Aussie consumer confidence firmed 0.4%.  New Zealand house prices in September were 0.7% higher than a year earlier.  South Korean unemployment in September was just 3.2%.

Industrial production in India was 4.1% greater than a year earlier in August.  That gain was less than predicted.

Scheduled U.S. releases today feature minutes from the FOMC meeting of September 20-21, the JOLTS index, and weekly oil inventories and mortgage applications.  Canada reports new home prices.  The ECB outgoing (Trichet) and incoming (Draghi) presidents speak publicly today.  So do Fed regional presidents Fisher, Pianalto, and Plosser and German Finance Minister Schaeuble.

Copyright 2011, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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