Dollar Strengthens on Comparatively Better U.S. Economic and Vaccine Deployment Outlook
March 23, 2021
The dollar advanced broadly overnight by 1.8% against the New Zealand dollar, 1.4% relative to the Turkish lira, 1.0% versus the Australian dollar, 0.7% against the Mexican peso, 0.6% vis-a-vis the Swiss franc and sterling, 0.5% against the euro and 0.4% versus the Canadian dollar and on a trade-weighted basis.
Investors are awaiting today’s releases of U.S. new home sales, the U.S. current account in 4Q and all of last year, the Richmond Fed manufacturing index, but most importantly testimony by Fed Chairman Jay Powell and Treasury Secretary Janet Yellen before the House Financial Services Committee, which begins at noon. Powell yesterday conceded that U.S. growth lately has been faster than anticipated and is still strengthening, but he also repeated the commitment to a growth supported policy stance and predicted that the spike in inflation will proved transitive and therefore not compel the Fed to abort monetary stimulus. Yellen has been echoing these economic outlook themes and is focused upon the nearly 10 million shortfall of employment compared to the pre-pandemic level.
The U.S. economy has benefited from a comparatively rapid vaccination roll-out, which contrasts with problems plaguing vaccination of Europeans. Germany just extended its lockdown to April 18, and U.S. regulators are now saying that reported results by AstraZeneca, whose vaccine is the one used in Europe, may have used outdated data. U.S. Covid deaths yesterday were below 700.
Ten-year sovereign debt yields retreated today by six basis points in U.S. futures and four bps each on German bunds and British gilts. The price of WTI oil has plunged 3.8%, and stock markets closed down 1.3% in Hong Kong, 1.0% in South Korea, 0.8% in Indonesia, 0.9% in China and 0.6% in Japan. European share prices are lower. So are U.S. futures but to a lesser extent.
British labor market data revealed the largest spike in average wage earnings (+4.8% on year in November-January) since early 2008 but also the biggest monthly rise in jobless insurance claims (+86.6k in February) since last May. The jobless rate was 5.0% in January, and employment that month remained 693k below the pre-pandemic level of February 2020.
Brazilian consumer confidence weakened this month to a 10-month low, but consumer sentiment in the Netherlands edged slightly higher to a one-year high. Dutch household spending that month recorded the smallest on-year slide in nine months but still a hefty drop of 13.5%. The Westpac gauge of New Zealand consumer confidence fell 0.8% last quarter.
Taiwan experienced its smallest on-year increase of industrial production last month since May 2020, but a 12.8% on-year spike in retail sales was the most in three years.
The orders index of the monthly industrial trends survey conducted by the Confederation of British Industry improved 19 index points to a 23-month high of minus 5 in March.
The $188.464 billion U.S. current account deficit last quarter was $7.547 billion wider than the previous quarter’s deficit. The deficit had been only $104.3 billion in the final quarter of 2019. The deficit in 4Q 2020 equaled 3.5% of GDP, a tad larger than 3.4% of GDP in the prior quarter. The deficit expanded from $480 billion in 2019 to $647 billion last year, with all major categories (merchandise trade, services, net investment income, and transfer payments) all deteriorating between those years.
Copyright 2021, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: British labor statistics, Powell and Yellen, U.S. Covid trends, U.S. current account
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