Dollar Loses Ground

June 7, 2018

The dollar fell overnight by 0.9% against the euro, 0.5% versus the Swiss franc, 0.2% relative to the yen, and nearly 2% vis-a-vis the Turkish lira.

The lira had been slumping this year on rising inflation, increasingly autocratic politics, and the central bank’s pressured neglect of its currency. A 75-basis point interest rate hike in April was deemed woefully insufficient. Then on May 24th, the late liquidity window rate was hiked three whole percentage points to 16.5%. A couple of days later, the policy structure was simplified by elevating the 8.0% one-week repo rate to 16.5% as well and calling such Turkey’s main policy rate. In a further tightening today, Turkish central bank officials raised the 0ne-week repo rate by more than anticipated, lifting such another 125 basis points to 17.75%.

The National Bank of Serbia also held a policy review, deciding to retain its key interest rate at 3.0%, a level reached after two earlier increases of 25 basis points each in March and April.

Ten-year sovereign debt yields rose today by 4 bps in Germany, 3 bps in France and 2 bps in the U.K. but fell 4 bps in Spain and 3 bps in Italy and Greece. The 10-year U.S. Treasury yield has edged a bit closer to 3.0%, while the 10-year Japanese JGB yield is steady at 0.04%.

Japanese Prime Minister Abe is in Washington for talks with President Trump today before both head to Quebec for the 2018 summit of G7 leaders that begins tomorrow.

Share prices in the Pacific Basin climbed 1.2% today in New Zealand, 0.9% in Japan, 0.8% in India, 0.7% in Hong Kong and South Korea, 0.6% in Indonesia and 0.5% in Taiwan and Australia. Equity rises so far in Europe have been comparatively small except for a 0.8% increase in Spain.

Gold is up 0.1%, and WTI crude oil has recovered 1.0% to $65.38 per barrel.

The second estimate of Euroland GDP growth last quarter confirmed increases of 0.4% from the previous quarter and 2.5% compared to the first quarter of 2017. Personal consumption and business investment each advanced 0.5% on quarter, but government spending was flat. Net foreign demand exerted a drag on GDP, while inventory changes enhanced the growth rate by 0.2 percentage points.

German industrial orders continued a hasty retreat in April, dropping 2.5% on month to 3.3% below the first-quarter average level. Orders were also 0.1% lower than a year earlier. Domestic demand for capital goods plunged 5.8% between March and April.

The Swiss jobless rate slipped to 2.6% seasonally adjusted in May from 2.7% in the prior month.

France posted a EUR 1.1 billion current account deficit in April, which was associated with around a 5 billion euro trade gap.

Italian retail sales fell 0.7% on month and 4.6% on year in April.

The Greek jobless rate dropped a half percentage point in March but remained above 20% at 20.1%.

Consumer price inflation in Ireland rose in May to a mere 0.4%. Dutch CPI inflation also accelerated, reaching 1.4%.  Austrian wholesale prices increased 1.4% in May and were 5.2% above their year-earlier level.

Norwegian industrial output in April was 1.9% lower than a year earlier.

Japan’s index of leading economic indicators rose to a 2-month high in April. The index of coincident economic indicators continued to paint an improving trend and hit a 4-month high, but the index of lagging economic indicators fell to a 7-month low. Japanese international reserves dropped $1.54 billion last month, bringing their net year-to-date decline to $9.7 billion.

Australia’s trade surplus of A$ 977 million in April was lower than any of the surpluses recorded in the first quarter. New Australian home sales, which had decreased in each month of 1Q, also fell 4.2% in April.

U.S. consumer credit and weekly jobless insurance claims data will be reported shortly.

Copyright 2018, Larry Greenberg. All rights reserved. No secondary distribution without express permission.


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