Dollar Climb Resumes with a Vengeance

March 19, 2015

The post-FOMC selloff of the dollar was reversed quickly.  Overnight gains in the U.S. currency topped 1.0% against the euro (1.7%), Swissie (1.3%), and Australian dollar (1.2%).  The greenback also advanced by 0.9% against the loonie, 0.8% versus the kiwi, 0.6% relative to sterling, and 0.5% vis-a-vis the yen, but it’s 0.5% softer against the yuan.

The FOMC message contained many elements that were more dovish than anticipated: downward revisions of growth, inflation, and FOMC member forecasts of interest rates for one thing and Janet Yellen’s press conference for another.  She said the deletion of the patient clause didn’t mean the FOMC would be impatient in normalizing policy, and she put more stress than expected upon the effects of a rising dollar in cutting inflation and U.S. exports.

Central bank decisions have been handed down already today in Norway and Switzerland.

  • Norges Bank, whose Executive Board deliberates quarterly, did not join Sweden and Denmark in easing further.  The deposit rate had been sliced in December by 25 basis points to 1.25% and will remain at that level for now because bank officials feel that the effect of plunging oil prices on this energy producer has thus far been relatively moderate.  However, forward guidance on interest rates point to further reductions and suggest that a move in June is quite possible.
  • The Swiss National Bank left its interest rate target at -0.75% within a range of negative 0.25% to -1.25%.  The SNB stunned markets in January by ending its cap of 1.2000 francs per euro.  Today’s statement reserves the right to intervene at times, calls the currency significantly overvalued, predicts it should depreciate, and greatly reduces projections for growth and inflation. 

Switzerland’s government statistical agency, SECO, also cut macroeconomic forecasts from estimates made in December.  GDP growth this year was halved by the SNB to 1.0% and trimmed by SECO to 0.9% from 2.1%.  SECO now forecasts export growth of only 0.7% versus a 4.1% projection before.  The central bank changed its consumer price inflation forecast for 2015 from -0.1% to -1.1% and cut its 2016 projection to -0.5% from +0.3% before.  Swiss monetary officials anticipate deflation cresting in the second half of this year at minus 1.2% and the on-year comparison not returning to zero until the first quarter of 2017.  Average inflation in 2017 is put at merely 0.4%.  SECO officials look for consumer prices to decline 1.0% this year and edge up 0.3% in 2016.

Share prices in the Pacific Rim rose 1.9% in Australia, 1.5% in Hong Kong, 0.9% in Taiwan, 0.8% in Indonesia, 0.7% in Singapore and 0.2% in New Zealand, but declines were posted of 0.5% in India, 0.4% in Japan, and 0.2% in China.

Equities in Europe plunged 1.2% in Greece but have risen 1.4% in Italy, 0.7% in Spain, 0.4% in Switzerland, and 0.1% in France, the U.K., and Germany.

The price of West Texas Intermediate oil relapsed 3.1% to $43.27 per barrel, whereas Comex gold is 1.1% higher at $1,164.10 per troy ounce.

The Japanese JGB yield with a 10-year maturity dived ten whole basis points back to 0.31%.  The 10-year British gilt yield is off 3 bps, while German bunds are steady.

Real GDP in New Zealand advanced 0.8% between 3Q14 and last quarter, lifting on-year growth to a 29-quarter high of 3.5% versus 3.2% in the year to the third quarter.  Economic activity last quarter got a big boost from tourism and retail.

Japan’s all industry index, a monthly supply-side proxy of GDP, jumped 1.9% in January, with increases of 3.8% in industrial production and 1.4% in services offsetting drops of 0.8% in public administration and construction.  The all industry index had dipped by 0.1% in both November and December and recorded a 0.2% decline in 2014 as a whole.  The index was also 1.7% lower in January than a year earlier.

Japanese department store sales recovered from a 2.8% on-year drop in January, bouncing up 1.1% in February.  The Reuters Tankan simulation survey in March produced a 5-point improvement to a reading of +16 in manufacturing in March but showed a one-point dip in services.

Japanese stock and bond transactions last week generated a net 201 billion yen capital outflow, less than half the size of the prior week’s net outflow.

Labor costs in the eurozone were 1.1% higher last quarter than a year earlier.  That’s a deceleration from 1.4% in the third quarter and 1.3% in the final quarter of 2013.

Dutch consumer confidence jumped nine points to a +2 reading in March.  Dutch unemployment edged 0.1 percentage point lower to 7.1% in February.

The Swiss trade surplus narrowed 27.6% on month to CHF 2.47 billion in February, as exports fell 2.8% while imports rose 3.1%.

Wholesale turnover in South Africa was 7% weaker in January than a year earlier.

Today’s slate of U.S. data releases includes the index of leading economic indicators, the Philly Fed manufacturing index, the fourth-quarter current account deficit and how it was funded, and weekly jobless insurance claims.  The Bank of Chile is holding an interest rate policy meeting.

Copyright 2015, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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