Dollar Falls to 15-Month Low on a Weighted Basis
July 13, 2023
The weighted DXY dollar index is hovering just above 100, a threshold last crossed in April 2022 and down 12.7% from late last September. The dollar has weakened on yesterday’s lower-than-expect U.S. CPI inflation news and the published Beige Book that revealed economic stagnation in five of the twelve Federal Reserve districts, modest to slight recent growth in five other districts, and slight declines in the Philly and San Francisco Fed regions.
Just in: U.S. producer prices, which posted a 0.1% increase both month-on-month and year-on-year in June, also slowed more than forecast by market professionals. The overall index’s 0.1% rise from June 2022 was down from a cyclical on-year high of 11.3% and the lowest advance in 34 months. Core producer price inflation also rose 0.1% on month, depressing its 12-month increase to a 29-month low of 2.4%. Core PPI inflation had crested at 9.6% in March 2022. In a separate report, new U.S. jobless gains fell by 12k last week to 237k. The lower CPI and PPI figures are welcome, but Fed officials want to see falling inflation accompanied by significantly less tight labor market conditions, and that hasn’t happened.
Prior to the PPI report, the dollar was showing overnight losses of 1.1% and 1.0% against the Aussie and New Zealand dollars, 0.6% versus the Swiss franc and sterling, 0.4% relative to the euro, 0.2% vis-a-vis the loonie, but no net change against the Japanese yen. Ten-year sovereign debt yields had tumbled 10 basis points in Itlay, 9 bps in Spain, 8 bps in France, 7 bps in Germany and 5 basis points in the U.K. and United States, but the 10-year Japanese JGB yield closed unchanged at 0.46% earlier today. There had been little change in the prices of gold and oil, while Bitcoin was up 0.6%.
In equity markets in the Pacific Rim, share prices soared 2.6% in Hong Kong, 2.0% in Singapore, 1.6% in Australia, 1.5% in Japan, and 1.3% in China. Among major continental European stock exchanges, share prices had risen between 0.5% and 1.0%, while the British Ftse was 0.3% higher. With a half hour left before U.S. equity trading tees off, stock futures are up moderately.
Chinese trade data were not as good as hoped, strengthening the case for fiscal and monetary stimulus in the second half of 2023. Although the June surplus widened 7.3% on month, it was 28.4% smaller than in June 2022, and both exports (-12.4% on year) and imports (-6.9%) contracted faster than assumed.
Euroland’s industrial production report for May provided another example of cooling global activity. Output rose only 0.2% from April and was 2.2% lower than a year earlier. In April-May combined, industrial production in the common currency area was 1.4% below the first quarter average, and Germany, Ireland, and Belgium each had less industrial production in May than April.
British industrial production dropped 0.6% in May, its biggest monthly slide in nine months, and was also 2.3% lower than a year earlier. British construction output fell 0.2%, its second monthly decrease in a row, and was only 0.2% higher than in May 2022. Monthly GDP in May dipped 0.1% on month and 0.4% on year, and the British merchandise trade deficit ballooned to a larger-than-forecast GBP 18.725 billion, resulting in the biggest goods and services trade gap (GBP 6.578) since December.
In other price data reported Thursday,
- Romanian CPI inflation slowed to a 15-month low but still remained in double-digit territory at 10.8% last month, down from November’s 116-month high of 16.8%.
- Consumer price inflation in the Czech Republic dropped to an 18-month low of 9.7% in June from a 345-month peak of 18.0% last September.
- France confirmed the preliminary CPI estimates for June — a rise of 0.2% versus May and a 4.5% year-on-year increase versus the 38-year peak of 6.3% experienced last September.
- Irish CPI inflation decelerated half a percentage point to a 16-month low of 6.1% in June. The 9.2% peak last October was the most in 38 years.
- South Korean import prices tumbled 3.4% on month and 15.7% on year in June.
- New Zealand food prices, up 12.5% on year in June, matched their biggest advance in slightly over three and a half decades.
Central bank watchers were surprised by a 25-basis point hike in the National Bank of Serbia’s policy interest rate to 6.5%. A pause in the cycle of rate increases had occurred in May, but with today’s sixth 25-basis point hike of 2023, the key rate becomes 6.5% versus a pandemic low of 1.0% that prevailed from December 2020 until April 2022. Serbian CPI inflation has slowed from a record high of 16.2% in March to 13.7% by June, but according to a released statement from the NBS,
The Executive Board believes that continued moderate tightening of monetary policy is still necessary given that inflation at the global level is showing signs of greater resilience than anticipated. Though inflation is gradually declining in many countries, it is still relatively high. Caution is also mandated by core inflation, which is receding at a slower pace than headline in many countries, due to the elevated inflation expectations and labour market factors, most of all further wage growth. This means that the struggle of central banks with inflation is not yet over and that an increase in policy rates of the world’s leading central banks can be expected in the coming period as well.
The Bank of Korea, in contrast, left its base interest rate at 3.5% for a fourth straight review. Starting from 0.50% in August 2021, the rate had been lifted ten times previously to 3.5% after this past January’s board meeting. Despite the current pause, a released statement makes the case for retaining a restrictive stance and promising to raise rates further if that is needed to achieve and maintain price stability. CPI inflation in South Korea has slowed 2.7% but is projected to move up in the second half of 2023 and average an above-target 3.5% for the year as a whole. A return to target will take “a considerable time” longer, and officials concede that the outlook is fraught with high uncertainty.
Copyright 2023, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: Chinese trade surplus, Euroland and British industrial production, U.S. PPI and Beige Book
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