Dollar Slips to Lowest Level Since First Week of 2021

May 25, 2021

Several Fed officials speaking yesterday reaffirmed commitment to current stance for some time longer. In response, the dollar fell 0.4% against the euro, 0.2% versus the Swiss franc, Australian dollar, Chinese yuan, Mexican peso, and its weighted index, and by 0.1% relative to the loonie and sterling. The dollar also firmed 0.1% against the Japanese yen.

An even bigger dollar gain of 0.4% overnight occurred against the Turkish lira, which continues to suffer from actions by Turkey’s prime minister that have diminished confidence in an objective and independent monetary policy.

Ten-year sovereign debt yields fell today by five basis points in Italy, 3 bps in Spain, 2 bps in France and Germany, and a single basis point in the U.K. and United States.

Equity markets are mostly stronger, with gains this Tuesday of 2.4% in China, 1.8% in Hong Kong, 1.6% in Taiwan, 1.0% in Australia, 0.9% in South Korea and Indonesia, and 0.7% in Japan. In India, which continues to be hammered by Covid-19 infections, equities are flat. The German Dax, up 0.7% so far, was supported by that economy’s May business climate index, and U.S. stock futures have risen, too.

The price of West Texas Intermediate crude oil dropped 0.6%. U.S. and Iranian officials are trying to find common ground on a nuclear accord that if successful would lift Iranian oil export supplies. The price of Bitcoins also faltered and fell below $37,000.

The German IFO Institute’s business climate index improved 2.6 index points to a 23-month high in May of 99.2. Business current conditions went up 1.5 points, and expectations climbed 3.5 points, compelling IFO officials to conclude that Germany’s recovery is “picking up speed.” Services and trade saw faster improvement than construction and manufacturing.

The contraction of German GDP last quarter when Covid restrictions were reimposed was revised to 1.8% from a drop of 1.7% reported initially. Personal consumption more than accounted for the setback, and net exports also made a negative contribution to the quarterly growth rate. The main mitigating factor came from inventories. GDP was 3.1% lower in 1Q than a year earlier following an average contraction in 2020 of 5.1%.

The CBI index of British distributive trades had leaped 65 points to +20 in April but failed to improve further in May as analysts were forecasting and instead printed at +18. Britain’s monthly budget data revealed the largest deficit-to-GDP ratio (14.3% since WWII) and outstanding public debt equal to 98.5% of GDP.

Swedish producer price inflation accelerated 1.8 percentage points to a 25-month high of 5.6% in April. That a swing from negative 4.4% last November.

Spanish PPI inflation doubled in April to 12.8%, most since at least 1984 and a swing from -8.8% in May 2020.

Consumer confidence in South Korean and Brazil improved to a 35-month and 3-month high s, respectively, in May.

From a 3-year high in April, Turkish business confidence settled back 0.6% to a 3-month low in May.

The South African leading economic index rose 1.7% in March following a 2.8% jump in February, which had been the largest gain in four months. The index has improved in 9 of the past 10 reported months.

Mexico’s trade balance swung from a $3.234 billion deficit in April 2020 to a $1.501 billion surplus last month.

Bank Indonesias key interest rate was left unchanged as expected at a record low of 3.5%. Officials had engineered five 25-basis point reductions during 2020 and topped that off with another 25 basis point cut to the current level in February 2021. Inflation is expected to stay within the 2-4% target, and the recovery and financial market conditions will benefit from an accommodative monetary policy stance.

At today’s other central bank policy review in Hungary, the key interest rate was also left unchanged. The National Bank of Hungary‘s base rate has been at 0.60% since a pair of 15-basis point reductions in June and July of last year.

Just In: U.S. on-year house price inflation accelerated in March to 13.9% according to the FHFA index and 13.3% according to the Case-Shiller index. Still Ahead: U.S. consumer confidence and new home sales.

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

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