Dollar Slides to Lowest Level Since Early January

May 18, 2021

The weighted DXY dollar index fell 0.4%, penetrating the key 90.00 threshold and touching an intra-day low of 89.75 versus a 52-week trough of 89.21. Bilateral dollar losses overnight totaled 0.6% against the Swiss franc and kiwi, 0.5% relative to the euro and sterling, 0.4% versus the Australian dollar, 0.3% vis-a-vis the loonie and yuan, 0.2% against the yen and 0.1% relative to the Mexican peso.

The above movements extend a recent inverse pattern of the dollar with progress in the post-pandemic reopening of social norms even though the United States has been leading other economies in that regard. This paradox stems from the dollar’s tendency to attract wealth in times of peril.

Ten-year U.S. Treasury, German bund, and British gilt yields each slipped a basis point today.

Equity markets in the Pacific Rim closed up 2.1% in Japan, 1.4% in Hong Kong, 5.2% in Taiwan, 1.2% in India and South Korea and 0.3% in China. But European markets and U.S. futures have risen only fractionally.

West Texas Intermediate crude oil strengthened 0.5% to more than a 2-month high, and theĀ  price of gold is 0.2% firmer.

Today’s menu of released data features first-quarter Japanese and Euroland GDP data. Both economies contracted.

Japan’s quarterly real GDP contraction of 1.3% (5.1% at an annualized rate) followed back-to-back recoveries of 5.3% last summer and 2.8% in the autumn and left the level of GDP 1.9% below its year-earlier level. Japanese real GDP had fallen 2.1% between the first quarter of 2019 and the first quarter of 2020. Quarterly changes between 4Q20 and 1Q21 in components of demand expressed on an annualized basis were negative in personal consumption (-5.4%), public spending (-4.2%), and business investment (-5.4%), and net foreign demand also depressed GDP because imports rose more strongly than exports. Inventories and residential investment, on the other hand, affected GDP positively. Nominal GDP sank 1.6% (-6.3% annualized) last quarter, and the GDP price deflator fell by 0.3% on quarter and 0.2% from a year earlier.

Japan’s monthly tertiary index, which tracks service sector activity, was also released Tuesday and revealed the first on-month increase (1.1%) since October during March. The index’s change from a year earlier also flipped into positive territory but only by 0.5%. In the first quarter, the tertiary index averaged 1.1% less than in 4Q 2020 and was down 3.4% on year.

In Euroland, real GDP dropped 0.6% in the first quarter (that is, 2.5% when annualized). Following a 0.7% contraction in the final quarter of 2020, the data confirm a double-dip recession. GDP has fallen in four of the last five quarters and posted a year-on-year contraction of 1.8% following a 3.3% plunge in the on-year change between 1Q 209 and 1Q 2020.

Quarterly and year-on-year GDP movements among selected members of the euro area shown in parentheses were Germany (-1.7% and -3.0%), France (+0.4% and +1.5%), Italy (-0.4% and -1.4%), Spain (-0.5% and -4.3%), the Netherlands (-0.5% and -2.6%), Portugal (-3.3% and -5.4%), Belgium (+0.6% and -1.0%), Cyprus (+2.0% but -1.6%), Austria (+0.2% and -2.7%) and Finland (+0.4% and -0.3%).

GDP was also reported for several economies in eastern Europe. Real GDP rose on quarter by 2.8% in Romania, 1.9% in Hungary, and 0.9% in Poland but fell 0.3% in the Czech Republic. In year-on-year terms from 1Q 2020, GDP slipped 0.2% in Romania, 1.8% in Hungary, 1.7% in Poland, and 2.1% in the Czech Republic. Russian GDP (-1.0%) was also below its year-earlier level in the first quarter.

Dutch household spending experienced a year-on-year drop in March of 0.4%, which was the smallest 12-month decline in a streak of 13 consecutive declines that was as much as 13.1% as recently as January.

Portuguese producer prices climbed another 1.5% in April and accelerated to the largest year-on-year increase (4.9%) in just over four years.

The latest batch of British labor market statistics produced an unexpected dip in the jobless rate to 4.8% in January-March from 4.9% in December-February and 5.1% in October-December. 84k jobs were created in the latest 3-month period. But wage inflation slowed to a 4-month low of 4.0% in the first quarter from 4.7% in 4Q 2020. Finally, British labor productivity rose 0.8% last quarter (1.0% on year) after a 4.3% drop in the final quarter of 2020.

The U.S. report on April housing starts, which dropped 9.5% on month, frame March’s 15-year high as perhaps more of an outlier than thought initially. Starts were still at only a 2-month low and 67.3% above their year-earlier level. Moreover, housing permits increased 1.2% last month to a 3-month high, so the overall picture of the housing market remains rather robust.

On the central banking front, the president of the Dallas Federal Reserve District became the latest U.S. official to throw water on speculation that the Fed would hike its interest rate this year. And minutes from this month’s policy meeting at the Reserve Bank of Australia conceded that GDP and inflation are recovering somewhat faster there than anticipated but likewise indicated that it will be quite a while before interest rates are raised.

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


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