Dollar Ending Week on an Up-Note But Euro Steady

March 26, 2021

The dollar overnight appreciated another 0.35% on a trade weighted basis, but strength wasn’t even this time. The dollar rose 0.6% against the yen and 1.0% relative to the Turkish lira. The key EUR/USD relationship is unchanged, and the greenback has slipped 0.4% versus the New Zealand and Australian dollars, 0.3% vis-a-vis the Canadian dollar and 0.2% against sterling.

It now appears that the grounded cargo ship blocking passage through the Suez Canal may not be cleared for at least another week, and this lifted WTI oil by 2.6% and commodity sensitive currencies in its wake.

Another overnight theme was the renewed advance of sovereign debt yields, with increases of 10-year asset yields of five basis points in Italy and the U.K. and four basis points in France, Germany and the United States. In contrast, the 10-year Japanese JGB yield remained steady.

Stock markets in Asia rose 1.6% in Japan, Hong Kong, and China, 1.5% in Taiwan, 1.2% in India and Indonesia, and 1.1% in South Korea. In Europe so far, the German Dax, Paris Cac, and British Ftse are each up 0.7%. U.S. stock market futures are mixed, with tech hit by more elevated interest rates but the S&P and DOW extending Thursday’s rise.

The monthly German business climate index compiled by the IFO Institute improved much more sharply in March than analysts were anticipating, rising 3.9 index points to a 21-month high of 96.6. Economic prospects and perceived current conditions shared pretty evenly in the month’s advance, and the improvement was also broadly spread across sectors with services, construction, but especially trade and manufacturing printing higher than in February.

Overall economic sentiment in Italy improved this month to an 11-month high, led by a 20-month high in manufacturing. consumer confidence dipped to a 2-month low but was better than forecast.

British retail sales volume rebounded about as expected in February, rising 2.1% on month after an 8.1% plunge in January and posting a second straight 12-month rate of decline (this time of 3.7%) after a sequence of six on-year increases in a row. British car production in February was 14% fewer than a year earlier.

Swedish retail sales advanced 0.7% last month on top of a 4.3% jump in January, resulting in the ninth on-year increase (this time of 4.6%) in the past ten reported months. The Swedish trade surplus of SEK 11.1 billion in January-February was only half the size of the surplus in the first two months of 2020.

Danish retail sales grew 3.0% in February but were 4.9% lower than the pre-pandemic level of February 2020.

Revised Dutch and Spanish GDP figures were published.

  • A quarterly 0.1% dip in Dutch GDP last quarter was the same as the preliminary estimate and associated with a 2.8% year-on-year contraction. GDP, by contrast, had risen 1.6% between the last quarters of 2018 and 2019.
  • Spanish real GDP in the final quarter of 2020 has been revised to showing no growth from an initial estimate of +0.4%. GDP was 8.9% below the level in the final quarter of 2019 and posted an average contraction of 10.8% in 2020.

Turkish business confidence printed higher at a 35-month peak of 110.8 in March, but that measurement preceded this week’s 10%+ depreciation of the lira that will no doubt intensify that economy’s inflation problem.

South Korean consumer confidence climbed 3.1 index points to a 14-month high of 100.5 in March.

Late Thursday came news that policy interest rates at both the Bank of Mexico and South African Reserve Bank had been kept as they were. The Mexican overnight interbank rate has been at 4.0% since a 25-basis point cut last September culminated three percentage points of reduction during 2020. Mexican central bank officials observe plenty of residual slack in their economy and expect the current 4.1% rate of inflation to converge on the 3% target a little over a year from now. The South African 3.5% repo rate has been at that level since a 25-basis point cut in July and also dropped by three percentage points last year. SARB officials revised projected GDP growth in 2021 up to 3.8% from 3.6% and forecasting that to be followed by grotwh of 2.4% in 2022 and 2.5% in 2023. CPI inflation is expected to hover at or just below 4.5%.

U.S. personal consumption expenditures (-1.0%) fell more sharply than had been expected in February. This marked the fourth monthly drop in five months, but the exception in January was a big 3.4% increase. Personal income tumbled 7.1% compared to January, which had been lifted by fiscal payments to individuals. Inflation measured by the PCE price deflator accelerated 0.2 percentage points further to 1.6% due to energy pressures, but the core inflation index unexpectedly dipped 0.1 percentage point to 1.4%. The savings rate of 13.6% again exceeded 10% and has averaged 14.5% over the past five months. One of the uncertainties surrounding U.S. growth this year involves how rapidly vaccinated U.S. consumers spend down their atypically higher savings later this year.

According to the preliminary estimate, the U.S. trade deficit widened another 2.5% in February. Widening external deficits haven’t depressed the dollar, which instead has benefited from comparatively good U.S. growth prospects and increasingly attractive financial asset returns relative to those offered elsewhere.

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

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