Dollar Buoyed by Higher U.S. Long-Term Interest Rates and Reinvigorated Hawkish Fedspeak
March 2, 2023
In overnight action, the dollar advanced 0.6% against the euro, sterling, yuan and kiwi and by 0.5% relative to the yen and Australian dollar.
At 4.07%, the ten-year U.S. Treasury yield has climbed 8 basis points today and 67 basis points over the four weeks since February 2nd. The Federal Reserve District presidents in Minnesota and Atlanta are the latest U.S. central bank officials warning that rates may need to go higher than previously imagined peaks.
Share prices closed this Thursday down by 0.9% in Hong Kong, 0.8% in India, 0.6% in Singapore, and 0.1% in Japan and China. European stock markets are little changed, and the interest rate-sensitive Nasdaq futures index shows a loss of 0.9%.
The price of a Bitcoin token has fallen 1.0%, and that of gold is 0.4% softer. WTI oil has firmed 0.3%.
There’s been some significant central bank news abroad:
- Minutes from the last ECB policy meeting reveal an intent to probably lift the policy rate by another half percentage point this month but divided opinion over how to guide investor thinking for the likely interest rate path beyond then. Governing Council members observed lessening inflation uncertainty but rising uncertainty regarding monetary policy. There is also a growing awareness that the spike in inflation stems from increasing profit margins rather than upward pressure on wages.
- Officials at the State Bank of Pakistan boosted the policy interest rate sharply from 17% to 20% today, bringing the rate level to a 27-year high. This was the second increase of 2023 following a 100-basis point move in January. From a pandemic low of 7.0%, the rate was lifted by 275 basis points in the final four months of 2021 and by a further 625 basis points last year, but today’s move was the sharpest of the current tightening cycle. CPI inflation has accelerated sharply lately to 31.5% last month, driven by the government’s higher goods and services tax rate and by a depreciating rupee, which fell 6.3% against the dollar today and by 36% compared to its value a year ago. A statement explaining today’s decision revised the near-term path of projected inflation sharply higher from a forecast made three months ago.
Among data reported today,
Euroland unemployment remained at 6.7% for a third straight month in January, defying expectations that it would revisit October’s low of 6.6%. But a second euro area release — the preliminary estimate of CPI inflation in February — exceeded forecasts by a rather significant margin. Overall inflation only dipped 0.1 percentage point to 8.5%, despite energy price inflation receding to 13.7% from 18.9%. The 12-month increase of food, alcohol and tobacco accelerated to 15.0% from 14.1%, and core inflation (excluding food and energy) advanced 0.3 percentage points to a record high 5.6%. Whatever ECB officials thought at their last meeting, these data set the stage for a more hawkish mindset when they meet again in two weeks.
Japanese consumer confidence edged 0.1 index point higher to a 6-month peak in February, but the 31.1 reading remain quite low historically. It had been at 37.6 last July. Japan’s monetary base in February was 1.6% smaller than a year earlier.
Brazilian real GDP contracted 0.2% in the final quarter of 2022, depressing the year-on-year growth rate to a 7-quarter low of 1.9% from 3.6% in the third quarter. Calendar year growth of 2.9% in 2022 was slightly more than two percentage points less than the 2021 pace.
GDP also contracted in Hungary last quarter, falling 0.4% from the 3Q level and slashing the year-on-year growth rate to 0.4% from 4.0% in 3Q, 6.5% in 2Q and 8.2% in the first quarter of last year.
Continuing U.S. labor market tightness was reflected in the latest weekly new jobless insurance claims, which fell by 3k to 190k, and by revised fourth quarter productivity and unit labor cost figures. The quarter-on-quarter rise of nonfarm productivity was revised downward from an earlier estimate of 3.0% to 1.7%, and a previously published 4Q-over-3Q 1.1% rise of unit labor costs has been revised three times greater to 3.2%. On-year growth in unit labor costs of 6.3% last quarter was not far below the peak of 7.0% in 2Q 2022.
South Korea’s manufacturing purchasing managers index for February matched January’s 48.5, indicating the eighth straight month in which activity in that sector has contracted.
Producer prices in Romanian were 24% higher in January than a year earlier.
Filipino PPI inflation fell to a 1-year low of 4.2% in January.
Individual countries in the aforementioned Euroland CPI data release experienced disappointing 1.0% month-on-month increases in February of 1.0% in Germany, France, and Spain, 1.3% in the Netherlands, 1.4% in Ireland, and 0.9% in Austria.
Copyright 2023, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: Euroland unemployment and CPI, Japanese consumer confidence, State Bank of Pakistan, U.S. productivity and unit labor costs
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