Awaiting Reciprocal Tariff Details and U.S. Producer Price Data – Currency Thoughts
Awaiting Reciprocal Tariff Details and U.S. Producer Price Data
February 13, 2025
America’s second inflation shoe this week, the January PPI report, is due within the half hour. President Trump has also promised an announcement today on “reciprocal tariffs,” conceivably the biggest round of levies thus far, and he will be meeting today with Indian Prime Minister Modi. A phone call earlier this week with Russian President Putin is said to have gone well, and the two leaders have agreed to meet soon in Saudi Arabia and hold talks on how to end the war in Ukraine and other economic and political concerns of mutual interest. The approval of U.S. presidential cabinet appointment meanwhile continues to progress at lightning speed, and so is strip down of federal government agencies under the direction of Elon Musk, who has taken on the aura of a Rasputin-like figure to the president.
In overnight trading, the dollar rose 0.6% against the Swiss franc, 0.4% versus the Australian dollar and Mexican peso, and 0.1% versus the loonie but fell by 0.4% against the Japanese yen and 0.2% relative to sterling. The dollar/euro relationship is unchanged.
Ten-year sovereign debt yields have settled back eight basis points in France, seven bps in Italy, six bps in Spain, 5 bps in Germany, three bps in the U.K., and two basis points in the United States, but the Japanese JGB yield edged another basis point higher.
Japan’s Nikkei-225 equity index closed up 1.3% this Thursday, and the South Korean Kospi climbed 1.4%, while the China’s Shanghai Composite lost 0.4% on the day. The German DAX and Paris Cac are up over 1.0%, while U.S. stock futures merely marked time ahead of the PPI release.
Prices for Bitcoin and oil are each 1.3% lower, whereas gold’s value has risen 0.6%.
Central bankers around the world are bracing for tariff-related inflation. Two central banks today that were expected to announce interest rate cuts — those in Serbia and the Philippines — instead left such unchanged and, coincidentally, each at the same current level of 5.75%.
The National Bank of Serbia’s one-week repo rate had recently undergone 25-basis point cuts in June, July and September from a peak of 6.5% that was maintained from July 2023 until the recent first cut in June. Serbian consumer price inflation ended last year at 4.3%, up from a 35-month low of 3.8% touched in June and above the central bank’s inflation target’s midpoint of 3.0%. Still, 4.3% was within the tolerable 4.5% target band ceiling, and a fourth cut of 25 basis points had been predicted. A big reason why that didn’t happen is explained in the released statement:
New protectionist measures could impact the international macroeconomic environment, trade flows and supply chains, with implications for inflation and economic activity, necessitating caution in the conduct of monetary policy. Caution is also needed due to uncertainties regarding the movements of global prices of energy and other primary commodities, as well as certain raw materials in the food industry, whose prices have recently reached record-high levels on global exchanges due to droughts in leading producer countries.
The existing 5.75% policy interest rate at the Central Bank of the Philippines constitutes its lowest level since February 2023. There too had been three recent reductions of 25 basis points done in August, October and December, but geopolitical strains gave pause to undertaking a fourth such cut today:
Uncertainty about the outlook for inflation and growth warrant keeping monetary policy settings steady. Before deciding on the timing and magnitude of further reductions in the policy interest rate, the Monetary Board deems it prudent to await further assessments of the impact of global policy uncertainty and the potential effects of the actual policies.
Just In: Like the consumer price figures reported Wednesday, January producer price inflation surpassed expectations, rising 0.4% from December (the third straight monthly advance of at least 0.4%) and 3.5% on year. December’s on-year pace got revised upward to a 22-month high of 3.5% as well. Core PPI inflation (excluding food & energy) dipped 0.1 percentage point to 3.6% but exceeded expectations of 3.3%. PPI inflation excluding trade as well as food and energy printed at a 4-month low of 3.4%. Import price data arrive tomorrow.
U.S. weekly jobless insurance claims fell back 7000 in the first February week to a 2-week low of 213k.
Among price data reported in other countries today, German consumer price changes in January (down 0.2% from December and a 2-month low of 2.3% compared to a year earlier) matched preliminary estimates. Core CPI inflation in Europe’s largest economy edged under 3% to 2.9%, not far from September’s 33-month low of 2.7%, but service costs (4.0%) had a 4-handle for a fourth consecutive time.
Japanese producer prices (aka corporate domestic goods prices) went up 0.3% on month and 4.2% on year (a 20-month high) in January. Import prices surged 1.5% on month and rose 5.3% on year, the largest 12-month advance in five months.
As in the inflationary 1970s, Switzerland continues to project an exemplary standard of maintaining price stability even in uncertain times. Swiss CPI inflation eased to a mere 0.4% last month, a 45-month low and down from 1.3% in January 2024 and 3.5% in August 2022. Officials worry that the franc’s propensity to appreciate might introduce deflationary risks.
Dutch consumer price inflation slowed to a 7-month low of 3.3% in January, well under the September 2022 peak of 14.5%.
Lithuanian producer prices reverted to negative territory (-1.7% versus a year earlier) during January from +0.3% in December.
Industrial production in the euro area slumped more than forecast in December, dropping 1.1% on month, 2.0% on year and 0.5% on average between the third and fourth quarters of 2024.
In contrast, British data reported today were better than forecast and helped lift sterling overnight.
- Monthly GDP in the U.K. grew 0.4% in December to show the largest year-on-year increase (1.5%) in 25 months.
- Industrial production went up 0.5% but was still 1.9% lower than in December 2023.
- Construction output dipped 0.2% on month but posted a larger-than-expected 1.5% year-on-year increase. The house price balance index published by the U.K. Royal Institute of Chartered Surveyors eased back to a 3-month low of 22% this month, still much better than a reading of -18% six months earlier.
- The U.K. goods and services trade deficit of GBP 2.82 billion in December was smaller than those in October or November, reflecting a smaller goods imbalance of GBP 17.45 billion.
Copyright 2025, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: British and Euroland industrial production, Central Bank of The Philippines, National Bank of Serbia, U.S. producer prices
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