Dollar Rose Slightly

February 12, 2021

The dollar recovered 0.5% against the Mexican peso and New Zealand dollar, 0.3% relative to the Swiss franc and Australian dollar, 0.2% versus the euro, yen, and loonie, and 0.1% against sterling overnight. On a trade-weighted basis, the U.S. currency is up 0.2% and trading in the middle of today’s high-low corridor.

Lunar New Year celebrations continue to disrupt trading in Asia. Equities closed down 0.6% in Australia and 0.1% in Japan and were unchanged in India. European markets show slight declines, and so do U.S. futures.

Prices for WTI oil and gold are 0.8% and 0.6% softer.

Ten-year sovereign debt yields are up 2 basis points in the U.K. and one basis point in Germany. The 10-year U.S. Treasury yield is flat, and its Japanese counterpart dipped 1 bp.

Following two monetary policy reviews in which the Bank of Mexico’s easing trend was put on hold, officials there cut their overnight interbank lending rate by 25 basis points to 4.0%. This move had been expected. A released statement notes that Mexican real GDP plunged 8.5% in 2020, which for now is considered a greater problem than inflation, which at 3.5% is above the 3% target. Risks still lie to the downside, and the pandemic continues to roll on. Between February and September last year, officials had cut their interest rate from 7.25% to 4.25%, and today’s additional 25-basis point reduction was decided unanimously.

This week’s policy review at the Central Bank of Russia was also eventful, although the 4.25% key interest rate level was not changed. Previous forward guidance had tilted toward more easing. There were four rate reductions between February and July last year totaling two full percentage points. Today’s central bank statement removes the possibility of another rate cut and instead talks about eventually nudging the very accommodative stance back toward a more neutral setting. Officials revised their inflation forecast for 2021 upward to a range of 3.7-4.2% and noted that aggregate demand has recovered more quickly than they were expecting.

The Central Reserve Bank of Peru retained a 0.25% reference interest rate, which is keeping monetary policy strongly expansionary as is appropriate while the pandemic’s drag persists. The rate had been cut 100 basis points last April. CPI inflation accelerated 0.7 percentage points to 2.7% last January, but core inflation of 1.7% remains tame. The released statement anticipates in-target inflation throughout the policy time horizon.

On the data release front this Friday, British GDP was found to have risen last quarter by 1.0%, which although above expectations still left such 7.8% lower than a year earlier. Moreover, GDP sank by a record 9.9% in 2020 as a whole. British industrial production increased 0.2% in December but posted year-on-year declines of 3.3% that month and 8.6% in 2020 as a whole. Business investment was 10.3% weaker than a year earlier and recorded a considerably smaller quarterly advance thanĀ  in the summer. Construction output dropped 2.9% on month in December and 3.9% on year, most since September. Finally, the goods and services trade deficit amounted to GBP 6.262 billion in December, including a shortfall of GBP 14.3 billion in the goods portion.

Swiss consumer prices recorded the smallest on-year decline (0.5%) in ten months during January and were 0.1% higher compared to December.

Spanish CPI inflation accelerated one percentage point to an 11-month high of 0.5% last month.

Indian CPI inflation continued to recede in January, dropping half a percentage point to 4.06% compared to a recent high in October of 7.61%.

Among Eastern European economies, CPI inflation in January slid to a 25-month low of 2.2% in the Czech Republic, rose to a 10-month high of 3.0% in Romania, and held steady at 2.7% for a third consecutive month in Hungary where such had topped at 4.4% before the pandemic.

Turkish industrial production posted decent growth of 1.3% on month and 9.0% on year in December, but retail sales (down 4.2% on month and up only 0.6% on year) has been hurt comparatively hard by the pandemic. Turkey’s current account deteriorated sharply from a $6.76 billion surplus in 2019 to a $36.72 billion deficit last year.

New Zealand’s manufacturing purchasing managers index got a boost from favorable Covid vaccine news in January and climbed to a reading of 57.5 that month, a 6-month high after December’s depressed 48.3 score. Food price inflation in New Zealand of 2.1% last month constituted an 18-month low.

Polish GDP dropped 0.7% last quarter, its third quarterly decline of 2020 and was 2.8% weaker than in the final quarter of 2019.

Norwegian real GDP only dropped 0.8% last year.

The U. Michigan index of U.S. consumer confidence will be reported later this morning.

The Trump impeachment defense team is expected to only take up part of today to present its case. Most Senate Republicans are standing by their man.

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

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