Lower Dollar

May 6, 2021

The dollar settled back 0.4% on a weighted basis and against the euro overnight. The dollar also lost 0.5% relative to the Swiss franc, 0.3% versus the loonie, and 0.1% relative to the New Zealand and Australian currencies. The dollar alternatively edged 0.1% higher against the peso and sterling and held steady on balance versus the yen.

Central bank officials in Turkey, the U.K., Norway, Malaysia, and the Czech Republic held their policy interest rates unchanged after policy reviews today. So did policymakers yesterday in Thailand and Poland, but not so at the Central Bank of Brazil, whose Selic Rate was hiked by 75 basis points for the second time this year.

  • Brazil’s Selic rate now becomes 3.5%. In 2020, the rate had been cut to 2.0% from 4.5% in five incremental moves. The tightening this year has been done because core inflation has risen to the top of the range compatible with reaching the bank’s inflation goal.
  • In addition to maintaining a 0.10% base rate, the Bank of England‘s Monetary Policy Committee retained a GBP 875 billion limit on bond buying, although the weekly pace of purchases was throttled back to GBP 3.4 billion from GBP 4.4 billion. The framing of forward guidance hasn’t changed. Before starting to raise the interest rate, officials want to see economic slack significantly reduced and inflation sustaining a 2% trend. Today’s vote was again unanimous. The rate in March 2020 was cut twice by a total of 65 basis points. No changes in the interest rate have been done since then.
  • The Bank of Norway‘s policy interest rate has been at zero percent since May 2020 when the third of three cuts within two months was engineered. A released statement said the economy is getting better despite some Covid-related uncertainty and reaffirmed “the policy rate will most likely be raised in the latter half of 2021.”
  • At Bank Negara Malaysia, the overnight policy rate of 1.75% since last July was retained. While Malaysian growth has improved, the country is grappling with the risk of a third Covid wave. Between January and July last year, the interest rate was reduced by a total of 125 basis points in four increments.
  • In 2020, the Czech National Bank‘s two-week repo rate was initially raised 25 basis points to 2.25% in February but then cut twice in March and once in May by a total of two percentage points to its current level of 0.25%. A released statement foreshadows a likely interest rate hike later in 2021. “Consistent with the forecast is stability of market interest rates initially, followed by a rise in rates from roughly the middle of this year onwards. Sizable price pressures from the domestic and foreign economy, the resumption of economic life in the rest of this year and a further improvement in economic activity in 2022 will require an increase in market interest rates from roughly the middle of this year onwards.”
  • Last but not least, the Central Bank of Turkey‘s one week repo rate was left unchanged at 19%. Today’s statement asserts that its higher level is starting to dampen inflationary pressure and defends the level as sufficiently restrictive because it is higher than CPI inflation. However, both CPI and PPI inflation have lately climbed sharply and are at 23- and 29-month highs of 17.14% and 35.2%. Turkey has been fighting a vicious cycle of accelerating inflation and currency depreciation, made worse by Prime Minister Erdogan’s propensity to fire central bank leaders that try to pursue monetary policies independent of his wishes.

U.S. jobless insurance claims last week fell almost 100k (and by much more than forecast) to 498k. Their four-week moving average of 560k is down 723.5k in the previous 4-week period. More good news was delivered by today’s release of productivity growth and unit labor costs in the first quarter. Productivity jumped 5.4% from the depressed 4Q 2020 level and was 4.1% greater than a year earlier. Unit labor costs dipped 0.3% on quarter, resulting in the lowest on-year advance (1.6%) since before the pandemic.

In the Japanese and Chinese markets that had been shut previously for extended holidays, share prices today rose 1.8% and fell 0.2%, respectively. Other markets in the Pacific Rim today rose 1.0% in South Korea and 0.8% in Hong Kong but fell 0.5% in Australia and 0.9% in New Zealand. Stock market and sovereign debt yield changes in Europe and U.S. futures thus far have been comparatively moderate. President Biden favors suspending patent rights in the case of Covid vaccines. Gold strengthened overnight, while the price of oil slipped somewhat.

Euroland retail sales data for March delivered an encouraging surprise. The volume of sales jumped 2.7%, almost twice expectations and resulting in a 12% increase from pandemic-depressed March 2020. In spite of the rise in March, however, sales in 1Q 2020 averaged 2.1% fewer than in the previous quarter.

Growth in German industrial orders also topped expectations by close to a factor of two, rising 3.0% in March versus February and 27.8% from the same month a year earlier. The rebound in orders was led by a 4.9% jump in domestic demand, but export orders also improved.

Norwegian industrial production rose 0.9% in March, trimming the 12-month rate of increase to a 4-month low of 0.6%.

Consumer confidence in Thailand climbed to the best level since at least the late 1990s.

More purchasing manager surveys from April were unveiled.

  • Egypt’s non-oil PMI fell to a 10-month low of 47.7 and printed below the 50 breakeven point for a fifth straight month.
  • Lebanon’s private PMI remained below 50 as well, but at 47.1 after 46.4 the month before was at an 18-month high.
  • Russia‘s composite and service-sector only PMI readings of 54.0 and 55.2 represent two-month lows.
  • The Irish services PMI rose 3.1 index points to a 14-month high of 57.7, and the broader composite PMI score in Ireland of 58.1 represents a 31-month peak.
  • Great Britain experienced its best composite and service-sector business growth conditions since October 2013 with PMI scores of 60.7 and 61.0, respectively. These were better than preliminary findings.
  • Euroland’s construction purchasing mangers index in April matched March’s 13-month high of 50.1. While the German construction PMI dipped to a 2-month low of 46.2, the scores in France (a 10-month high of 49.8) and Italy (a 171-month high of 57.6) were up.

U.K. voters are participating in local elections today.

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

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