Dollar Marking Time as Two-Day FOMC Meeting Commences

December 14, 2021

The dollar remained unchanged on balance overnight against the euro, Swiss franc, kiwi, yuan and versus its weighted DXY index. The greenback ticked 0.1% higher relative to the yen and loonie and 0.1% lower vis-a-vis sterling.

A two-day meeting of the FOMC began in which policymakers are expected to accelerate previously signaled plans to taper the Fed’s bond purchases.

Meantime, central bank interest rates were raised today in Hungary, Pakistan, and Armenia to counter intensifying inflationary pressures.

  • Hungary’s 30-basis point base rate hike to 2.40% is the seventh increase since June. The rate had begun 2021 at a record low of 0.60% and now rises to its highest level in seven years. CPI inflation in Hungary has climbed to 7.4%, a 14-year high and well above the new central bank interest rate.
  • A full percentage point hike of the State Bank of Pakistan’s policy interest rate to 9.75% follows increases of 150 basis points in November and 25 bps in October. CPI inflation in Pakistan has rose from 8.4% in August to 11.5% 11.5% last month.
  • A 50-basis point increase of the Central Bank of Armenia’s refinancing rate to a 5-year high of 7.75% marks its sixth increase this year from a low of 4.5%. Armenian CPI inflation was only 3.7% last December but then increased to 6.5% by June, 9.1% in October and 9.6% last month.

There’s been more bad news on inflation reported today around the world, most notably a larger-than-forecast 0.8% monthly jump in U.S. producer prices last month, which was the biggest advance since July and lifted the 12-month rate  of PPI increase by another full percentage point to a ten-plus-year high of 9.6%. Year-on-year rises climbed to 43.6% for energy and 6.9% excluding food, energy and trade.

The Swiss PPI/import price index accelerated to a 481-month high in November of 5.8%, led by a 10.9% on-year rise of import prices and also embodying a 3.4% increase in domestic producer  prices.

Swedish CPI inflation increased half a percentage point to a 123-month high of 3.3% in November. Core inflation of 3.2% was the most since end-1993.

Finnish CPI inflation also increased by 0.5 percentage points to 3.7%, having ended 2020 at 0.2% last December.

Portuguese CPI inflation of 2.6% last month was up from 1.8% in October and -0.2% last December.

Food price inflation in New Zealand rebounded 0.3 percentage points in November, returning to September’s 13-month high of 4.0%.

Wholesale prices in India were 14.25% above their year-earlier level in November, the most in 275 months and up from a 10.66% 12-month rate of rise in September.

Unlike the dollar, equities have mostly traded on their back foot today. After 100 minutes of U.S. trading, the Nasdaq, S&P 500 and DOW showed losses of 1.7%, 1.0%, and 0.3%. In Asia, stock markets closed down 1.3% in Hong Kong, 1.0% in Taiwan, 0.7% in Japan, and 0.5% in China. Germany’s Dax has so far lost 1.0% today.

Ten-year sovereign debt yields are also reflecting jitteres, with gains to four basis  points in the United States, 3 bps in the U.K., Spain and Netherlands, and two bps  in France and Portugal.

Concerns over whether the Covid spread will be amply contained have additionally depressed the price of oil, with West Texas Intermediate down 1.0%. The price  of gold has lost 0.7%.

Among other data released today, industrial production in the euro area rose 1.1% on month in October, no thanks to Germany, Spain or France where such respectively recorded monthly declines of 1.1%, 1.1% and 0.4%. In year-on-year terms, industrial production in Euroland climbed 3.3% in the latest reported month, down from 5.1% in September and 20.5% last May.

British labor market statistics showed another sizable drop in jobless claims of 49.8K in November, the lowest 3-month  average jobless rate in 16 months (4.2%) during October, a much smaller-than-forecast 3-month rise in employment of 149k, and the fourth successive slowdown of on-year average wage earnings growth to 4.9%.

Small business sentiment in the United States during November according to the NFIB index bumped 0.2 points above October’s 7-month low of 98.4.

The Indian trade deficit last month of $23.27 billion constituted a record high.

South African consumer confidence improved  one index point last quarter to a 3-quarter high.

Japanese industrial production growth in October was revised upward from an initial estimate of 1.1% to 1.8%, resulting in a smaller year-on-year decline of 4.1%. Capacity utilization jumped 6.2% but was 5.2% below the level in October 2020.

The NAB-compiled indices of Australian business confidence and conditions each printed at +12 in November. Confidence fell 8 index points to a 2-month low, and conditions rose two  points to a 3-month high.

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

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