Dollar Strengthens to Near 12-Week High – Currency Thoughts
Dollar Strengthens to Near 12-Week High
October 23, 2024
The morning after the U.S. election is just two weeks away, and investors are betting that the winner of the presidential vote will not be apparent then or possibly for a week or more afterward. What financial markets are counting on is that the next FOMC meeting will begin that day, that a rate decision will be shared on the following day, November 7, and that Fed Chairman Powell’s ensuing message will be more cautionary in tone than at the prior press conference on September 18. Compared to its level then, the 10-year Treasury yield today is already 55 basis points higher. Numerous Fed officials since that time have warned against continuing rate cuts in increments greater than 25 basis points. U.S. economic data releases since the September meeting also have depicted more dynamism than predicted.
The election on November 5 will be far more consequential than the FOMC meeting on November 6-7, but for now markets are responding more closely to the more predictable of these two events, and the dollar has been a beneficiary of that priority. In weighted terms, the DXY dollar index strengthened 0.3% overnight, led by a 1.1% jump against the Japanese yen but also including gains of 0.4% relative to the Australian dollar, 0.2% versus the euro and Swiss franc, and 0.1% vis-a-vis the Chinese yuan and Canadian dollar.
The Bank of Canada is coincidentally reviewing its monetary policy today and likely to cut its own interest rate by 25 basis points. More importantly, this month’s board meeting coincides with the latest publication of the quarterly Monetary Policy Outlook, which in addition to updated Canadian macroeconomic forecast always conveys insightful information about what is expected to happen in the U.S. economy. Also due today is the release of the Federal Reserve Beige Book, a summary of U.S. regional economic conditions in the period since the last FOMC meeting and an important document used by committee members when they meet and vote at their upcoming policy review.
The rise of long-term sovereign debt yields has given pause to the animal spirits felt in equity trading. In futures trading overnight, the SPX, DOW, and Nasdaq are each pointing to a moderate decline at today’s open. Stock markets in the Pacific Rim displayed varying outcomes today, rising 1.3% in Hong Kong, 1.1% in South Korea and 0.5% in China but falling 0.9% in Taiwan and 0.8% in Japan. European stock markets are showing red but not heavily so.
There’s still no sign of a Middle East truce, but oil settled back 1.0% overnight. The price of Bitcoin fell back 1.4% despite signs that Trump, who has an emotional fondness for crypto, will be returning to power. Gold is slightly firmer.
While investors await the Bank of Canada’s rate announcement, the decision of authorities at the National Bank of Georgia already signaled their vote to leave its policy interest rate unchanged at 8.0%. That level matches the pandemic low and is three percentage points below the peak of 11.0% maintained from March 2022 until May 2023, but the rate hasn’t been lowered further since a 25-basis point cut this past May. Inflation in Georgia is targeted at 3.0% and has sunk from a high of 13.9% in 2022 to 2.2% at mid-2024 and 0.6% last month. According to a released statement today from officials, price expectations are holding stable, and Georgian economic growth this year is on a solid trajectory that has surpassed what they expected. While inflation this year is projected to be only around 1.2%, they see such moving to near target next year. The statement moreover warns that “heightened uncertainty—both domestically and globally—continues to pose risks,” and this justifies policy caution. ” If inflationary risks do not materialize and the severity of inflationary pressures diminishes, the NBG will continue to vigilantly reduce the policy rate to its neutral level.”
Consumer confidence measures for October were reported in several economies. Such held steady at a 6-month low in Slovenia, rose to 16-, 3- and 2-month highs in Turkey, South Korea and Belgium, but weakened to a 10-month low in Denmark and a 2-month low in the Netherlands.
The IMF’s quarterly World Economic Outlook released yesterday cut projected global GDP growth next year slightly to 3.2%. An upward revision of forecast U.S. growth to 2.2% was offset by downward projections of 1.2% for the euro zone and 4.2% for emerging economies. Global CPI inflation is forecast to recede further from 3.0% this year to 1.9% in 2025.
Having peaked at 7.8% in July 2022, South African consumer price inflation slowed 0.6 percentage points to a 42-month low of 3.8% in September. Core CPI inflation held steady at August’s 27-month low of 4.1%.
A 2.0% consumer price inflation rate in Singapore last month was its lowest since March 2021. That’s down from 7.5% at peak in August-September 2022.
Slovenian producer prices recorded a sub-zero 12-month change in September (-0.9%) for the ninth straight time. Such had peaked at +22.5% in May 2022.
In the year between September 2023 and last month, industrial production in Taiwan rose 11.2%, its smallest advance in six months, while retail sales growth quickened to a 3-month high of 3.2%.
Copyright 2024, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: Bank of Canada, CPI inflation in South Africa and Singapore, IMF World Economic Outlook, National Bank of Georgia, U.S. election and next FOMC meeting
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