Dollar Rises After ECB Expresses Concern about Euro Strength and Ahead of FOMC Announcement Later Today

January 27, 2021

In a speech Klass Knot, President of the Netherlands central bank and therefore an ECB Governing Council member, has protested against the euro’s recent rise and warned that central bankers will respond if appreciation appears to jeopardize the goal of lifting inflation back to its target.

Compared to Tuesday closing levels, the dollar rallied 0.4% against the euro and also has gained 0.8% against the peso, 0.6% versus the Australian dollar, 0.5% vis-a-vis the loonie and kiwi, 0.3% relative to sterling and 0.2% against the yen and Swiss franc.

The price of gold fell 0.6%. WTI oil initially firmed, but the gain has been shaved to just 0.1% on balance ahead of the U.S. open.

Stocks and fixed income securities were in a bearish mood ahead of more corporate earnings reports and Fed Chairman’s press conference, which is scheduled to begin at 14:30 EST (19:30 GMT). The slower-than-desired deployment of Covid vaccines in most countries remains a concern, and so does renewed U.S. political conflict between Democrat and Republican politicians.

  • Share prices closed down 1.9% in India, 0.7% in Australia, and 0.6% in South Korea. Markets thus far in Germany, France, Spain, Italy and the U.K. have declined 1.0% or more, and U.S. S&P and DJIA futures are down about 1% as well.
  • Ten-year German bund and U.S. Treasury yields slipped by 2 and 1 basis points.

Data releases in the Pacific Rim and Europe have not been market drivers to any great extent today, as attention is fixated on the coronavirus outlook, corporate earnings news, and the policy initiatives of the Biden administration.

German consumer confidence fell for a fourth consecutive month, printing at an 8-month low of -15.6 versus a recent crest of -1.7 and a 2020 low of -23.1 nine months ago. The need for a new lockdown in Germany is likely going to result in negative GDP growth in both the final quarter of 2020 and first quarter of 2021.

French consumer confidence in January fell by a greater-than-forecast three index points to a two-month low of 92. That compares to 104 in January 2020.

By contrast, consumer sentiment improved last month to a 2-month high in South Korea and a 27-month high in Finland.

Switzerland’s ZEW expectations index of investor sentiment dropped 3.6 index points to a 2-month low of 43.2 in January. Such remains above readings of 8.3 in January 2020 and -45.8 last March but below the 2020 high of 48.7 in June.

Japan’s November indices of leading and coincident economic indicators were each revised marginally lower.

On-year growth in Chinese corporate profits continued to accelerate in December, reaching 20.1% versus 15.5% in November and -6.3% in December 2019. Earnings expanded 4.1% on average last year compared to a 3.3% drop in 2019.

Austria’s manufacturing purchasing managers index rose 0.7 index points to a 25-month high of 54.2 in January, indicating faster improvement in that sector.

Sweden recorded a SEK 59.3 billion trade surplus last year versus SEK 14.6 billion in 2019, but the surplus in December was just SEK 2.7 billion.

The British Nationwide house price index accelerated to on-year advances of 7.3% in December and 6.4% last quarter. British shop prices recorded their largest year-on-year decline (2.2% in December) in eight months.

Brazil posted its largest current account deficit last month in 11 months totaling $5.4 billion.

Australian CPI inflation climbed 0.2 percentage points to a slightly higher-than-forecast 0.9% last quarter. Such had dipped to -0.3% two quarters earlier but was 1.8% in the final quarter of 2019. Core CPI inflation remains below target at around 1.3%.

A 0.2% monthly increase in U.S. durable goods orders last month was only about a fourth as much as analysts were anticipating. Such orders fell 7.0% in 2020 as a whole but were 3.8% higher in December alone than a year earlier.

The FOMC is not expected to change policy or its guidance this month. The FOMC statement at 14:00 EST will be followed by a press conference 30 minutes later. Being the first meeting of a new calendar year, note that four district presidential voting seats have been rotated as is custom.

Copyright 2021, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

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