Weighted Dollar Strengthens to Three-Week High, While Bitcoin Weakens to Six-Week Low

August 1, 2023

The dollar strengthened overnight by 1.3% against the Australian dollar, 0.9% versus the New Zealand dollar, 0.6% vis-a-vis the Canadian dollar, 0.5% relative to the Japanese yen, 0.4% against the Swiss franc and sterling, 0.3% versus the Chinese renminbi and Mexican peso, but just 0.2% against the euro. The price of Bitcoin tokens dropped 1.2%.

Officials at the Reserve Bank of Australia surprised analysts by not hiking their 4.10% Official Cash Rate further, although they noted that additional monetary tightening may become necessary. This was the second pause of 2023. A released statement from Governor Lowe said future rate hikes will hinge especially on ” developments in the global economy, trends in household spending, and the outlook for inflation and the labor market.” While inflation has slowed, such remains “too high” especially in the services sector, and the labor market needs to become less tight. Juxtaposed against the goal of 2-3% inflation, officials project inflation falling only to 3.25% at the end of next year and not returning sustainably into the targeted corridor until late 2025.

Officials at the Central Bank of Armenia engineered a follow-up rate cut to June’s initial move. Both reductions were by 25 basis points, and the key rate level now becomes 10.25%, a very elevated level considering that consumer prices in June were 0.5% lower than in mid-2022. Starting from 4.5%, 13 hikes from December 2020 until December 2022 totaled 625 basis points.

Ten-year sovereign debt yield began August on a rising note, with gains of 4 basis points in the U.K., 3 bps in the U.S. and 2 bps in Germany. Prices for oil and gold are down 0.4% and 0.9% so far today. The strong performance of equities last month continued overnight in South Korea (+1.3%), Taiwan (+0.8%), Japan (+0.9%) and Australia (+0.5%). However, share prices are down 1.0% in Germany, 0.9% in France, 0.2% in the U.K. and 0.3-0.5% in U.S. stock futures.

Euroland’s July manufacturing purchasing managers index was left unrevised at a 38-month low of 42.7. Only Greece had a reading above the 50 level that divides expansion from a deterioration of conditions. Amidst depressed demand, excessive inventories, and a policy-induced tightening of monetary conditions, the recession in manufacturing has at least another half year to run, if not longer. Inflationary pressure is at a 166-month low, but that’s only in manufacturing. Service sector price conditions remain problematic.

In many other economies, the story is the same. Great Britain’s manufacturing PMI dropped to a 7-month low of 45.7. China’s manufacturing PMI in July fell 1.3 index points to a half-year low of 49.2. Although at 57.2, India’s reading was the lowest since February. Russia’s 52.1 score was at a 9-month low. Turkey’s 49.9 reading was its lowest so far in 2023. Hungary’s PMI score of 45.7 was down from 57.1 just two months earlier. Australia’s PMI was unrevised from the preliminary estimate of 49.6. The Absa-compiled South African factory PMI sank to a 2-year low of 47.3. Poland’s PMI fell to 43.5, an 8-month low. Sweden’s index improved 1.6 points to a 10-month high but remained historically low at 47.6. Taiwan’s PMI fell to an 8-month low of 44.1. Aside from Greece (53.5), countries with a higher July than June reading and one that exceeded the 50 threshold were limited to Norway and the Philippines.

Unemployment in Euroland stayed at 6.4% for a third straight month in June. That’s too low with total CPI inflation still above 5.0% and now exceeded by the pace of core inflation. The number of German unemployed workers fell this month by 4k instead of rising about 20k as analysts were predicting.

Japan’s jobless rate similarly was below expectations, dropping to a 5-month low of 2.5% in June.

British shop prices posted a 7.6% year-on-year rise in July, smallest in seven months. The British Nationwide house price index sank 3.7% between mid-2022 and mid-2023, its largest on-year decline in almost 14 years down from an 14.3% increase in the year to March 2022, which had represented a 208-month high point.

CPI inflation in Indonesia slowed to a 16-month low of 3.08% this month from 5.0% as recently as March and a record 5.95% last September. Core CPI of 2.48% was also its lowest in 16 months.

Pakistani CPI inflation of 28.3% this month was at a 6-month low and down from a 30-year high in May of 38%.

Copyright 2023, Larry Greenberg. All rights reserved. No secondary distribution without express permission.



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