Dollar Dips as U.S. Covid Cases Swell and Trade Deficit Climbs to Record High in June

August 5, 2021

U.S. Covid-19 cases rose to 96.0k yesterday from 92.6k on Tuesday.

The United States goods and services trade deficit of $75.749 in June was a record monthly high. The first-half deficit of $428.6 billion was 46% greater than in the first half of 2020.

The Bank of England’s Monetary Policy Committee again voted unanimously to leave its Bank Rate unchanged at 0.10%. Officials however concede that the recent acceleration of inflation has exceeded their expectations by a significant margin, and they now foresee the 12-month rate of CPI increase to hit 4.0% later this year. Moreover, officials are somewhat mixed in their interpretation of the significance of inflation’s rebound:

Some members of the Committee judge that, although considerable progress has been made in achieving the conditions of that forward guidance, the conditions are not yet met fully. The other members judge that the conditions of the guidance have been met fully, but note that the guidance made clear that these have only ever been necessary not sufficient conditions for any future tightening in monetary policy.

The Bank of England vote on the size of quantitative stimulus split 8-1, and there was agreement that “some modest tightening over the forecast period” would be appropriate. The base rate is expected to rise to 0.2% by late next year, 0.40% in 4Q 2023, and 0.50% a year later. Interest rates are likely to rise before quantitative stimulus tapers.

A fourth central bank interest rate hike this year has been engineered in Brazil, and the increase of a full percentage point exceeded expectations. At 5.25%, the Bank of Brazil’s Selic Rate is now 325 basis points above its level at the beginning of March.

The Czech National Bank today followed up on an initial 25-basis point increase of its two-week repo rate that was done in June. From March to May of last year the rate had been slashed by 150 basis points in three moves. Today’s increase was also by 25 bps and brings the 2-week repo rate to 0.75%. The Lombard rate was raised by 50 bps to 1.75%, but the discount rate was left unchanged at 0.05%.

In market action today, the dollar is down 0.7% versus the loonie, 0.4% relative to sterling and the Australian dollar, 0.3% against the peso, 0.2% versus the kiwi, and 0.1% relative to the euro and the DXY weighted dollar index. Major U.S. stock marketĀ  indices have recovered 0.4-0.6% following Wednesday’s drop. Equities in Asia closed down 0.8% in Hong Kong and 0.3% in China but up 0.5% in Japan. Continental European markets have risen somewhat.

The 10-year Treasury yield has rebounded two basis points further to 1.21%. WTI oil is up 0.8%, whereas the price of gold is down 0.5% so far today.

In June Canada scored its largest monthly trade surplus since the Great Recession 13 years ago. The C$ 3.23 billion surplus was buoyed by substantial exports of energy, cars and auto parts.

German industrial orders in June rebounded 4.1% from a 3.2% drop in the previous month. The increase beat expectations by a factor of two, but the year-on-year increase slowed for a second straight month to 26.2%. Domestic demand leaped 9.6%, but export orders were just 0.4% higher.

The construction purchasing manager indices in July of the euro area, France, Italy and the U.K. each declined to five-month lows, while that for Germany improved to a 4-month high.

Ireland’s composite and services purchasing managers index rose to a record high of 65.0 and a 251-month high of 66.6, respectively.

Dutch CPI inflation settled back 0.6 percentage points in July to a 7-month low of 1.4%. Singapore CPI inflation of 4.0% in July also slowed to the lowest pace since December. 0.45% on-year CPI inflation in Thailand was at a 4-month low last month. In Taiwan, CPI inflation edged 0.06 percentage point higher in July but remained benign at 1.95% and over 0.5 percentage point lower than in May.

Indonesian GDP grew 3.3% last quarter and was 7.1% above its year-earlier level.

Consumer confidence in Thailand slumped further to a 269-month low in July.

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



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