Dollar Dips Again
February 16, 2023
The dollar slid overnight by 0.1% against the euro, Swiss franc and sterling, stayed unchanged versus the Canadian and Australian dollars, and firmed 0.2% relative to the Japanese yen. The weighted DXY dollar index is 0.2% softer and trading 9.7% below its 52-week high touched in the final week of last September. The dollar’s climb down has ironically been juxtaposed against massive net capital outflows. In the final quarter of 2022 according to international capital flows into and out of the United States that were measured by the U.S. Treasury and reported late yesterday, net long-term capital flowing into America totaled $392 billion, and the broader inflow of all financial capital (short- as well as long-term) soared to $421 billion. The explanation for this paradox is the elusive nature of causation between foreign exchange rates, domestic interest rates, and flows of capital. All three vital measures of financial market activity and pricing are determined simultaneously in a marketplace that is left to find its own equilibrium.
Quietly yet persistently, the token price of Bitcoin has staged an impressive comeback since bottoming out last November 9. Such had plunged 76% over the previous two years, but since the low of $15,508, Bitcoin tokens have rebounded almost 56%. More than a measure of pure risk aversion that was designed to do well in times of uncertainty, Bitcoins act more like a hedge against the dollar, and in spite of the rally over the past three months, tokens are still a whopping 62% less expensive than at their 2021 peak. Compared to other currencies, the dollar remains the linchpin of the international monetary system with no serious challengers on the near-term radar.
In overnight stock market action, share prices rose 2.0% in South Korea and between 0.7% and 0.9% in Singapore, Taiwan, Hong Kong, Japan and Australia. European share prices have also risen, but U.S. futures have lost some ground ahead of today’s release of U.S. producer price figures. Gold and WTI oil are marginally firmer.
Core domestic private machinery orders in Japan rebounded 1.6% in December but still posted a 5.0% quarterly drop in 4Q 2022 after sliding 1.3% in the third quarter. The December total was 6.6% fewer than a year earlier, but officials are predicting a respectable rise in the current quarter.
Japan also experienced a trade deficit last month. The 3.497 trillion yen shortfall in January was the eighteenth gap in a row and more than twice the size of December’s deficit. In seasonally adjusted terms, however, the JPY 1.821 trillion deficit was almost identical to December’s result.
Italy’s trade balance deteriorated from a EUR 50 billion surplus in 2021 to a deficit of EUR 31 billion last year. Spain’s trade deficit of EUR 68 billion last year was 2.6 times larger than its 2021 deficit.
Australia’s red hot labor market cooled off more than expected in January. The jobless rate rose 0.2 percentage points to an 8-month high of 3.7%. Labor market participation fell to 66.6% from 66.8% in the previous month, and instead of rising about 20k further, employment fell 11.5k overall and by 43.3k among full-time workers.
Unemployment in Hong Kong fell to a 3-year low of 3.4% on average in November-January.
Dutch unemployment ticked up to a 2-month high of 3.6% in January from December’s 6-month low of 3.5%.
House prices in China have been below year-earlier levels since last May. The 1.5% drop from January 2022 to January 2023 matched the declines in September and December. October and November saw 1.6% year-on-year declines.
In central banking news,
Policy interest rates at the National Bank of Rwanda and Central Bank of The Philippines each were raised today by 50 basis points. For Rwanda, the hike was the fourth over the past year and matched the size of the previous increase three months ago. At 7.0% after the latest increase, the rate is 250 basis points above its 4.5% level that prevailed from April 2020 until February 2022, but the policy rate level is also nowhere near as high as CPI inflation in Rwanda, which has only decelerated to 31.1% from the high of 33.8% in November.
The overnight Filipino base rate now becomes 6.0%, most since the global banking crisis of 2008. During the pandemic, the rate had been halved from 4% to 2.0% by November 2020. The interest rate remained at 2.0% all of 2021 but underwent seven increases over the final eight months of 2022. Today’s 50-basis point move matches the size of the prior hike in December. A released statement from Bangko Sentral ng Pilipinas today observes that CPI inflation is still cresting. Such rose to 8.7% in January from 8.1% in December and 6.9% in September, and core inflation is higher too. In an upward revision, officials now expect inflation to average 6.1% this year, versus a 2-4% target.
The situation facing officials at Bank Indonesia is more hopeful. True to their forward guidance at the last 25-basis point interest rate hike to 5.75% in January, the interest rate after this month’s meeting was left unchanged at that level. “5.75% is sufficient to ensure core inflation remains within the 2-4% target corridor in the first half of 2023 and that total CPI inflation returns to the target in the second half of the year.” Intervention support for the rupiah is complementing the tighter monetary policy. CPI inflation has fallen faster than officials anticipated to 5.28% overall (3.27% core) from 5.95% back in September.
Just In: A trio of U.S. data releases this morning were disturbing. Number one, a 0.7% monthly jump in producer prices was the most in 7 month and almost twice what street estimates were predicting. Consequently, PPI inflation (a 22-month low of 6.0% versus 6.5% in December and 11.7% last March) didn’t decelerate as much as assumed. Number two, housing starts in spite of a mild winter fell 4.5% in January to a 31-month low and 21.4% below the January 2022 total. Building permits likewise were 27.3% below their year-earlier level. And Number three, the Philly Fed regional manufacturing index was considerably more negative in February than last month instead of less so as analysts were anticipating. At -24.3, the index was 15.4 points lower than in the prior month and at its weakest point since May 2020 near the pandemic’s ground zero.
Copyright 2023, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
ShareThis
