Good Day for the Dollar and a Bad One for the Turkish Lira

June 2, 2021

The U.S. dollar strengthened 0.4% against its weighted DXY index overnight, advancing by 0.6% relative to the Swiss franc, 0.5% versus the Australian and New Zealand dollars, 0.4% against the euro, and 0.3% vis-a-vis the Japanese yen. Among the major currencies, only the British pound (+0.1%) outperformed the dollar.

At the other extreme, the Turkish lira dropped 1.1% so far this Wednesday. Selling pressure was amplified by Prime Minister Erdogan’s blustery remark that Turkish interest rates need to fall within two months. At today’s low of 8.7387 per dollar, the lira was 17.7% weaker than on March 19 and 21.1% below its year-to-date high of 6.896 on February 16. Turkey is experiencing a vicious cycle of reinforcing lira depreciation and accelerating domestic inflation.

Sterling was buoyed by a two-basis point rise today in the ten-year British gilt yield. By contrast, ten-year U.S. Treasury and German bund yields fell 1 and 2 basis points.

A 1.1% rise overnight in the price of West Texas Intermediate crude oil was again a major financial market theme. Oil ministers in OPEC and Russia have agreed to continue tapering production. The price of gold slipped 0.4% in the face of the strengthening dollar.

Stock markets Wednesday rose 1.1% in Australia, 1.4% in Indonesia which had been closed yesterday for Pancasila Day, and 0.5% in Japan but also fell by 0.8% in China and 0.6% in Hong Kong. The German Dax, Paris Cac, and British Ftse have risen marginally, and U.S. stock futures are generally flat.

Today’s data menu features more evidence of rising inflation and weaker-than-forecast German retail sales.

Producer prices in the euro area jumped by a further 1.0% on month in April, sending the 12-month rate of increase 3.3 percentage points higher to a 151-month high of 7.6%. Over the past five reported months, the PPI has climbed at an annualized rate of 13.4% in Euroland.

South Korean consumer price inflation increased to 2.6% in May, a 45-month high.

Although at a 5-month high, Indonesian CPI inflation last month remained below the 2% threshold at 1.68%.

German retail sales dived 5.5% in April, more than twice as much as analysts were predicting, and that sliced the year-on-year advance to 4.4% from 11.6% in the prior month.

Australia experienced positive GDP growth in 1Q for a third straight quarter. GDP was 1.8% greater than in the prior quarter and 1.1% above its pre-pandemic level in the first quarter of 2020. Business investment in machinery and equipment rose at the fastest pace in over 11 years, but personal consumption grew considerably more slowly than in the final quarter of 2020.

Mortgage applications in the U.K. in April surpassed expectations at a continuing robust 86.92 thousand, but consumer credit unexpectedly fell further in the month.

Indonesia’s manufacturing purchasing managers index rose 0.7 index points to a record high of 55.3 in May.

Norway experienced its largest current account surplus (NOK 94.3 billion) in seven years last quarter.

U.S. data releases today will include motor vehicle sales and the IBD/TIPP optimism index. Governor Brainard of the Federal Reserve is the latest central bank official to assert that the conditions for tapering monetary policy stimulus have still not been met fully, but she conceded that progress is being made.

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

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