Dollar Falters

July 29, 2021

The dollar fell overnight by 0.4% against the euro, peso, Swissie, and DXY weighted index but even more versus the New Zealand dollar and Turkish lira (each 0.7%), loonie (0.6%), and yuan and sterling (each 0.5%). Lesser dollar declines of 0.3% and 0.2% occurred against the Australian dollar and Japanese yen, respectively.

Equities, commodity prices, and 10-year sovereign debt yields are higher. 

The two market takeaways from Wednesday’s FOMC even were that asset purchase tapering could begin as soon as later this year but that Fed officials continue to view inflation as mostly transitory and labor market data as still quite a way short of what they want to see. Hence, there is no sense of urgency to reverse the highly accommodative monetary stance.

Second-quarter GDP growth in the United states — +6.5% at an annual rate from 1Q — was two percentage points below market expectations. Even so GDP is back at pre-pandemic strength, having risen 12.2% on year following a 9.1% contraction between the second quarter of 2019 and 2Q 2020. Quarter-on-quarter growth was depressed by contractions in the contributions of net exports and inventories as well as declines in government expenditures and residential investment. The PCE price deflator’s on-year inflation rate ballooned to 3.8% from 1.8% in the first quarter and 0.6% in the second quarter of 2020.

There were other slight U.S. data disappointments. New jobless insurance claims last week totaled 400k, which was about 15k above expectations but 24k less than in the prior week. Also, pending home sales fell 1.9% last month, and news on the Covid front, 66.9k newly identified infections yesterday and a larger number of deaths, was disconcerting.

Data releases Thursday by other countries highlighted elevated inflationary pressure and dampening effects on activity and confidence from supply chain bottlenecks and worker shortages.

German CPI inflation accelerated 1.5 percentage points to 3.8% in July, the most since end-1993. The energy and food components were 11.6% and 4.3% above year-earlier levels, and a 2.2% rise in service sector prices also exceeded target.

Italian PPI inflation rose a percentage point to a 311-month high in June of 9.1%.

Belgian PPI inflation increased to a 28-month high of 2.27% in July.

Despite the largest month-on-month decline in a year, Spanish on-year CPI inflation of 2.9% this month was also slightly above June’s level.

Singapore and Malaysia each recorded a third straight month of double-digit PPI inflation in June, but the respective readings of 16.8% and 11.5% were lower than those for May.

French producer prices jumped 1.1% in June, boosting the 12-month rate of increase to 7.5%, highest this century.

A 13.2% quarterly leap in Australian export prices in 2Q was the most in 18 quarters. Meantime, import prices rose 1.9%.

South African PPI inflation of 7.7% in June was the most in 64 months.

Sweden reported several statistics. Real GDP grew 0.9% last quarter and by a record 10% on a year-on-year basis. But the 10.3% jobless rate in June was the most since 1996. Business sentiment improved to a reading of 122.9 in July from 118.9 in June and 91.9 last December, while consumer confidence relapsed to 106.5 from 109.3 in the  previous month and 111.5 in May.

The number of German unemployed workers dropped for a third straight month, falling by a much greater-than-anticipated 91k in July after slides of 39k in June and 19k in May.

In July, Dutch business sentiment improved further to its best level in over 35 years, Danish factory-sector confidence climbed to a 4-year high, and Turkish economic sentiment reached a 38-month high.

Spanish business confidence improved to a 39-month high in July.

Russian GDP was 10.1% greater in 2Q than a year earlier and roughly back to pre-Covid levels.

Economic sentiment in the euro area rose 1.1 index points to an all-time high of 119.0 this month despite lower readings in the retail and construction sectors. In addition, consumer confidence reflected Delta Variant fears, printing at minus 4.4 after a 3-1/2 year peak  of -3.3 in June.

British mortgage approvals fell to an 11-month low in June, and consumer credit last month also undershot expectations and was smaller than in May.

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

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