Dollar Softens Further

August 22, 2018

The dollar lost some further modest ground against major currencies like the euro (0.3%), Swiss franc and Canadian dollar (0.2%), and New Zealand dollar (0.1%). The dollar edged up 0.1% against the Aussie dollar and sterling, by contrast. U.S. stocks remained buoyant yesterday on strong corporate earnings prospects, but investor misgivings about Trump’s legal uncertainties appear to have weighed on the dollar.

An even better explanation for dollar sluggishness is the lagged response to Trump’s criticism of recent Fed policy, which diminishes confidence that Fed policy will remain as independent in the future as it has been in the past.

Relative to emerging market currencies, the dollar rose 1.0% against the ruble, prompting intervention support of its currency by the Bank of Russia. The ruble has been hit by U.S. sanctions against Russia. The Turkish lira edged up 0.1% but remains at risk especially after U.S. National Security Adviser Bolton called Turkey’s house detention of Pastor Brunson a “big mistake.” The dollar fell 0.8% against the South African rand and 0.5% versus the Mexican peso.

The yields on ten-year German bunds, Japanese JGBs, British gilts, and U.S. Treasury futures firmed a basis point. Global inflation has crept higher, and comments by Trump about Fed policy raise the risk that U.S. monetary officials may not stay ahead of the curve in capping that rise.

Gold moved back above $1,200 per troy ounce. WTI oil climbed 1.5%, but copper prices settled back.

Reserve Bank of Australia Deputy Governor Guy Debelle made some dovish remarks, defending the need for accommodative monetary policy to ensure that inflation rises to and sustains its targeted pace.

Australian construction work done rose 1.6% last quarter, twice as much as was expected after a modest 0.2% dip in the first quarter. The Westpac index of Australian leading economic indicators was flat in July and posted a 0.55% annualized rise over the last six reported months, down from a 1.31% 6-month annualized rise last September-February. Slower growth ahead is implied.

Japan’s all-industry index, a monthly supply-side proxy for GDP, fell 0.8% in June. This drop left the 12-month rate of increase at just 0.2%, down from 1.3% in the first quarter and 1.7% in calendar 2017. Construction, industrial production, and service-sector activity posted respective month-on-month drops in June of 2.5%, 1.8%, and 0.5%.

Several Asian markets in were shut today for the holy Islamic Festival of Sacrifice, including India, Indonesia and Singapore. Share prices rose 0.6% in Japan and 0.5% in New Zealand but fell 0.7% in China and Hong Kong. European bourses have strengthened 0.4% in the U.K., 0.3% in France and 0.2% in Spain and Germany.

Retail sales volume in New Zealand advanced 1.1% last quarter, lifting the on-year rate of increase back to 3.1% from 2.8% in the first quarter of 2018. That’s still well down from a 5.8% advance in the previous year between mid-2016 and mid-2017.

South African CPI inflation accelerated to a 9-month high of 5.1% in July. The core inflation rate edged up 0.1 percentage point to 4.3%.

Icelandic wage inflation rose to 6.3% in July from 5.9% in June.

Irish producer prices fell 1.7% on month and 0.8% on year in July.

Finnish unemployment of 6.5% in July was its lowest since November 2011.

Minutes from the last FOMC meeting highlight the U.S. economic calendar. Investors will also get to see existing home sales. Canadian retail sales are being released today as well. The Jackson Hole annual central banking symposium, which has been sponsored by the Kansas City Fed for the past 40 years, starts Thursday. It will be interesting to see if Chairman Powell says anything about central bank independence.

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



Tags: , ,


Comments are closed.