Dollar Climbed 0.9% against Yen and to a Two-Week DXY Weighted High

January 4, 2022

Although steady overnight against the euro, Swissie, loonie, yuan, and Australian dollar, the greenback advanced 0.3% against its DXY weighted index, mainly reflecting a 0.9% advance to a 5-year high of 116.35 yen per dollar.

The dollar’s buoyancy to within a half percent of its 52-week high mirrors the advance of U.S. long-term interest rates. Confidence that the Omicron variant will not knock the U.S. economy off its robustly recovering pace and expectations the the Federal Reserve will be raising interest rates soon have lifted the ten-year U.S. Treasury yield from 1.41% as recently as December 17 to 1.52% by end-2021 and 1.66% now.

So far, share prices have withstood rising global inflation and long-term interest rates. U.S. equity futures extended recent gains overnight. Other stock markets today rose 2.0% in Australia, 1.4% in Taiwan, 1.5% in Singapore, 1.8% in Japan, and just over 1% in India. In Europe, the British Ftse and Paris Cac are up 1.4% and 1.3%, while the German Dax is showing a 0.8% gain on Monday’s close.

Ten-year British gilt and Japanese JGB yields have risen nine and two basis points today.

Among commodities, the prices of oil and gold are marginally firmer.

Price data from France and Switzerland today hint that inflationary pressure may be close to an inflection point.

  • French consumer prices ticked up 0.2% in December, half of its monthly November advance, and the 12-month rate of increase did not rise further above November’s 2.8% 13-year high.
  • Likewise, Swiss CPI inflation stayed level at 1.5% in December, thanks to a 0.1% monthly downtick. To be sure, the French and Swiss December inflation rates were still well above last January’s milestones of +0.6% and -0.5%, respectively.

German growth has not been hit by Omicron as badly as feared. Retail sales in Euroland’s largest economy climbed 0.6% on month in November, defying forecasts of a half percent after October increase. Sales were only 0.2% lower than in November 2020, which was a considerable improvement over October’s 3.3% 12-month rate of drop. And sales also exceeded their pre-pandemic level by about 6%. Another German data release today revealed a greater-than-forecast 23k drop of unemployed workers in December and an unexpected further dip of the jobless rate to 5.2%, which compares to 6.1% at end-2020.

China’s manufacturing purchasing managers index improved a full point to a 6-month high in December of 50.9.

Britain’s manufacturing PMI reading for December has been revised 0.3 points higher to a two-month low of 57.9.

The 52.5 manufacturing PMI reading in Vietnam last month represents a further recovery from a 16-month low of 40.2 in September and signaled the fastest improvement in seven months. Egypt’s non-oil PMI arrived below the 50 improvement versus deterioration line of demarcation for a thirteenth straight month but, at 49.0, signaled the slowest rate of deterioration in four months.

Not all purchasing manager results reported today were higher, however. Japan’s December manufacturing sector scored a 54.3, 0.1 point above the preliminary estimated result but down from 54.5 in November. Australia’s manufacturing PMI (57.7) also was at a 2-month low, and Thailand’s index swung below the 50 threshold to a 3-month low of 49.5. The Saudi non-oil purchasing managers index fell 3 points to a 9-month low in December of 53.9.

The Mexican index of business confidence ticked up 0.1 point to a 32-month high of 52.7, having bottomed at 35.2 in May 2020.

Portuguese business confidence last month rose slightly to a 2-month high, but consumer confidence remained at November’s 8-month low.

The British Retail Consortium’s index of shop prices, which had shown on-year declines from June 2019 through October 2021, rose 0.8% between December 2020 and December 2021. That was the biggest such advance in 31 months.

Just in: Producer prices in Canada posted a smaller monthly advance in November of 0.8% than in October (+1.3%) but nevertheless recorded a higher 18.1% year-on-year increase, breaking above the previous 2021 high-water mark of 17.3% last May. Canada’s raw material price index fell 1.0% on month, thanks to a 4.4% drop in the energy component, which still managed to soar 85.9% compared to a year earlier.

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

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