Flat Dollar Ahead of Emergency G7 Leaders Meeting

August 24, 2021

Dollar rates against the euro, yen, Swiss franc and DXY weighted index are unchanged from Monday closing levels. The U.S. currency has not done as well against commodity-sensitive currencies, falling by 0.7% versus the kiwi, 0.5% against the Australian dollar, 0.2% vis-a-vis the loonie, and 0.1% versus the Chinese yuan and Mexican peso. One currency against which the dollar has edged up 0.1% is sterling.

An emergency virtual meeting addressing the humanitarian crisis in Afghanistan among the Group of Seven leaders is underway, but President Biden seems unlikely to agree to extend the deadline for pulling out all U.S. troops by the end of this month.

U.S. data released today revealed a lower-than-forecast Richmond Fed manufacturing index of +9 in August, down from a reading of 27 in July. Also, U.S. new home sales in July rebounded just 1.0% on month and were 27.2% below their year-earlier level.

In stock market action this Tuesday, key U.S. indices in the first hour of trading were modestly higher and not far from record highs. Share prices in Asia advanced 2.5% in Hong Kong, 1.6% in South Korea, 1.1% in China and 0.9% in Japan, but losses in Europe of less than 1% have occurred in the U.K., Germany, France, Spain, and Italy.

The 10-year U.S. Treasury yield is up a basis point, while its British, Japanese, and German counterparts are unchanged.

The price of West Texas Intermediate oil rose 1.4% overnight, and gold has firmed 0.2%.

The Delta Variant remains a big concern. Global deaths so far are closing in on 4.5 million, and U.S. cases and deaths on Monday exceeded 150k and 1 thousand.

German quarterly real GDP growth in the second quarter has been revised upward by 0.1 percentage point to 1.6%. Set against the pandemic ground zero a year earlier, GDP exceeded the 2Q 2020 level by 9.8%, of 9.4% when adjusted by the different number of calendar days. Such was the first on-year increase since the final quarter of 2019. The turnaround from a quarterly GDP contraction in the first quarter this year was powered by advances of 3.2% in personal consumption and 1.8% in government expenditures. Business investment had no impact on second-quarter growth. Net exports exerted a 0.6 percentage point drag on GDP growth, and inventories accounted for just 0.1 percentage point of the quarter’s positive GDP growth rate.

Britain’s monthly distributive trades index leaped sharply to an 80-month high in August of +60 from a reading of 23 in July and -50 last January.

In Peru, GDP in 2Q fell 0.4% on quarter but posted a 41.9% record rise in year-on-year terms.

New Zealand retail sales advanced 3.3% on quarter and 33.3% on year during 2Q 2021.

South Korean consumer confidence slipped 0.7% in August to its lowest level since April.

Czech consumer confidence printed this month at a 20-month high, but business sentiment there eased to a four-month low.

South African unemployment increased 1.8 percentage points to 34.4% last quarter, which was the highest reading since at least the Great Recession. Another piece of adverse South African economic news today was the largest monthly drop in its leading business cycle indicator (-2.3%) in 15 months.

China’s index of leading economic indicators rose less sharply in July (0.7%) than in June (1.2%), and the index of coincident economic indicators slumped 2.3% in the latest reported month. However, there are signs that the Covid outbreak in Asia’s largest economy may have crested.

As was expected, the National Bank of Hungary’s base rate was lifted another 30 basis points at this month’s review of monetary policy. Such follows similar hikes made in June and July and brings the rate level to 0.90%, its highest level since mid-2015. In 2020, two cuts of 15 basis points each had been done. The backdrop for the rate’s trend reversal has been an acceleration of CPI inflation to above-target territory. The target is 2-4%, and officials are determined to return there in the medium term. According to a statement released today, “the Hungarian economy has successfully restarted. In light of the September Inflation Report, the Monetary Council will perform a comprehensive assessment of the results achieved by the cycle of interest rate hikes, and will identify risks to the inflation outlook. The Monetary Council will continue the cycle of interest rate hikes until the outlook for inflation stabilises around the central bank target in a sustainable manner and inflation risks become evenly balanced on the horizon of monetary policy.”

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


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