Central Bank Policies in the Spotlight; Dollar and U.S. Equities Rebound – Currency Thoughts
Central Bank Policies in the Spotlight; Dollar and U.S. Equities Rebound
April 17, 2025
The weighed dollar index recovered 0.5% from Wednesday’s intra-day low, with overnight gains of 0.5% against the Swiss franc and yen, 0.3% versus the yen, Canadian dollar and Swiss franc, and 0.1% relative to sterling.
Ten-year sovereign debt yields, which had previously declined, rose overnight by 5 basis points in Japan, 3 bps in France, Italy and Spain, 2 bps in the United States and Germany, and a basis point in the U.K.
U.S. stock futures are showing green in the case of the SPX, DOW and Russell 2000 but red in the DOW’s instance.
Gold settled back 0.3%, but prices for oil (+1.3%) and Bitcoin (+0.7%) are higher.
There have been interest rate announcements in Euroland, South Korea, Turkey, and Ukraine, but a great deal of attention has been also been commanded by the inevitable loud complaint from President Trump against Fed policy and Jerome Powell whose term as chair doesn’t end until next January.
“The ECB is expected to cut interest rates for the 7th time, and yet, ‘Too Late’ Jerome Powell of the Fed, who is always TOO LATE AND WRONG, yesterday issued a report which was another, and typical, complete ‘mess!’ Too Late should have lowered Interest Rates, like the ECB, long ago, but he should certainly lower them now. Powell’s termination cannot come fast enough!”
All three major interest rates at the European Central Bank were indeed cut later this morning by the expected 25 basis points, resulting in a cumulative decline of the deposit rate since last June to 175 basis points to 2.25% and 210 bps to 2.40% in the central bank refinancing rate. In justifying today’s move, note was made that total, core and service-sector inflation continue to recede. Wage growth is also moderating, and “the outlook for growth has deteriorated owing to rising trade tensions,” which are weighing on the confidence of both consumers and the business community and which also elicited tighter financing conditions. Forward policy guidance from the Governing Council continued to stress the meeting-t0-meeting nature and data dependence of rate normalization. As for Trump’s remark, it should be noted that Euroland has experienced much weaker growth than the U.S. and hence is much more assured of reestablishing in-target inflation on a sustainable basis.
The Bank of Korea’s Base Rate was left unchanged today as expected at 2.75%. Three earlier 25-basis point cuts were made in October, November and February from the peak 3.5% level maintained from January 2023 until October. The main justification for today’s caution was “uncertainty regarding the future path of economic outlook remains high due to changes in U.S. tariff policies,” but stimulative fiscal policy and potential won volatility were cited too in today’s statement. Additional rate cuts could be forthcoming.
In a big surprise, officials at the Central Bank of Turkey (TCMB) lifted their interest rate today by 350 basis points on the heels of three cuts of 250 bps undertaken between December and March. The new rate becomes 46.0%, defying analyst expectations that it was going to be kept at 42.5% in light of the greater-than-expected full percentage point drop in CPI inflation last month to 38.1%. Turkish inflation had previously yo-yoed from 8.6% prior to Covid to 85.5% in October 2022 to 38.2% in mid-2023 to 75.5% in May 2024, and officials fear a fresh upswing ahead from”potential effects of the rising protectionism in global trade on the disinflation process through global economic activity, commodity prices and capital flows.” The statement leaves the door open to additional rate hikes if deemed appropriate.
Few economies are more exposed in this age of geopolitical chaos than Ukraine, and so the National Bank of Ukraine had raised its key policy interest rate three times from December to last month by a total of 250 basis points to 15.5%. In contrast to Turkey’s big and totally unexpected rate hike, Ukraine’s monetary officials, who had been expected to lift their rate additionally at this month’s scheduled meeting, instead left such at 15.5%. A released statement predicts “inflation will resume decline in the summer and will slow to a single-digit level at the end of this year. Officials “envisage keeping the key policy rate at 15.5% over the coming months and returning to a cycle of interest rate policy easing after the peak of the price surge has passed and the risk of inflation staying in double digits has been reduced.”
Among data reported today, German producer prices fell 0.7% on month in March and returned to a negative year-on-year change (-0.2%) for the first time since October. While non-energy PPI inflation held steady at 1.4%, energy sank much more sharply (-3.6%).
Energy was also the main driver of a minus 1.4% rate of Portuguese producer price inflation.
In New Zealand consumer prices jumped 0.9% in the first quarter, the most in six quarters and posted a 3-quarter year-on-year high of 2.5%.
Australian unemployment ticked up to 4.1% in March, matching that level for the third time since October, and employment (+32.2k) rose less than expected.
The Swiss trade surplus in the first quarter of CHF 13.35 billion was 56% wider than a year earlier.
The Japanese trade surplus in March of JPY 544 billion was wider than its year-earlier level (JPY 350 billion) as well.
Today’s pre-Good Friday data menu were mixed. While housing starts, which dived 11.4% last month, and the Philly Fed manufacturing index swung from 12.5 in March to a much weaker-than-forecast -26.4 reading this month, new jobless insurance claims last week declined 9K to a 10-week low of 215k.
Copyright 2025, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: Bank of Korea, Central Bank of Turkey, European Central Bank, National Bank of Ukraine, Trump and Powell dispute
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