Modestly Firmer Dollar Ahead of U.S. Consumer Prices Release

September 13, 2023

The dollar strengthened 0.2% overnight against the yen, euro, sterling and Swiss franc. Analysts project a slight rise in overall U.S. CPI inflation but another slowdown in core inflation that excludes food and energy.

U.S. stock futures are a bit softer. Share prices closed down 0.7% in Australia, 0.5% in China, and 0.2% in Japan. Stock markets in Euroland’s four largest economies are down 0.8-1.2% so far.

Whatever the U.S. CPI release reveals, the grinding rise of oil prices is a continuing concern. West Texas Intermediate rose 0.7% overnight and is hovering around $89,50 per barrel. The price of bitcoin increased 1.1%, while gold is steady.

Ten-year German bund and U.S. Treasury yields climbed four and two basis points overnight.

Several British indicators were reported today. A 0.5% monthly slide in GDP during July was biggest drop this year and left GDP unchanged from its July 2022 level. Industrial production sank 0.7% on month, also a bigger drop than forecast, and construction declined by 0.5%. These signs of weakness depressed sterling to its softest dollar value in three months. Elsewhere, the merchandise trade deficit of GBP 14.1 billion and goods and services trade shortfall of GBP 3.446 billion in July were the smallest gaps in nine and 17 months, respectively.

Japanese domestic producer price inflation decelerated 0.2 percentage points in August to a 29-month low of 3.2%, which contrasts with a 10.6% reading last December. Import prices, which in September 2022, were 49.5% higher than a year earlier posted an 11.8% on-year decline last month versus a 14.4% 12-month drop in July.

Japan’s Ministry of Finance quarterly survey of business sentiment reveals significantly improved business conditions in 3Q 2023 and expectations of an additional recovery in the coming quarter.

New Zealand food price inflation of 8.9% in August was the least in 11 months and down from a 438-month high of 12.5% in June.

The National Bank of Georgia implemented its third interest rate cut of 2023, lowering such by 25 basis points to 10.0%. The cut matches a 25-bp move done last month after an initial 50-basis point reduction in May. Previously, the rate had been increased from 8.0% to 10.5% during 2021 and by 50 basis points to an 11.0% peak in March 2022. Consumer price inflation in Georgia had decelerated from a 127-month peak of 13.9% in December 2021 to 0.3% in July 2023. Such rose to 0.9% in August and is projected to hover just below the 3% target in the medium term. Core inflation stands currently at 2.7%, a 54-month low, but a statement released by monetary officials identifies risks in the outlook. “inflation risks remain high. The current tense geopolitical situation increases the uncertainty on the commodities markets. In terms of inflationary pressures, along with external risks, domestic economic trends are still noteworthy…. Other things being equal, the NBG will continue to normalize the policy rate only at a moderate pace.”

Industrial production in the euro area sank 1.1% on month in July, considerably faster than forecast. This slide comes after a 1.0% average drop in the second quarter compared to 1Q 2023, and it resulted in a 2.2% year-on-year decline in July versus a 1.2% on-year drop in the second quarter. Monthly production declines of 3.8% in Germany and 0.7% in Italy more than outweighed increases in the other two largest economies using the euro.

In Hong Kong, industrial production rose 3.3% on quarter and 2.6% on year during 2Q 2023.

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

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