Dollar Weakens as Fed’s Independence Over Interest-Rate Policy Comes Under Further Attack – Currency Thoughts
Dollar Weakens as Fed’s Independence Over Interest-Rate Policy Comes Under Further Attack
April 21, 2025
(195) Many domestic financial markets around world remain either fully or partially closed for the extended Easter holiday including most of Europe, much of Africa, Australia, New Zealand and Hong Kong. Nonetheless, there are two big stories this morning.
- Pope Francis died at 07:35 local time (01:35 EDT).
- The Chairman of the U.S. President’s Council of Economic Advisers, Kevin Hassert, confirmed that a study is under way to determine if the president has the authority to change the Federal Reserve chairman, and hence the independence of monetary policy. The Federal Reserve by law is accountable to Congress, from whom it has been charged with a dual mandate of maximizing employment and securing price stability (defined as a predictable and low 2.0% pace over the medium term). More generally in central banking, independence has come to be viewed as a sacred and essential pre-condition for maintaining as best as possible a stable value of money. Inflation measures the internal value money, while exchange rates are the barometer for the external value of any money. Over time, the two gauges are linked. Chronic relatively high domestic inflation invariably becomes correlated with a depreciating currency in the long run and in the absence of government interference either with direct market interference or other currency or capital controls. In May 1997, British Chancellor of the Exchequer at the direction of incoming Prime Minister Blair famously handed over day-to-day control of U.K. borrowing costs to the Bank of England. Separating British monetary policy from political forces in 1997 considered the biggest economic policy decision since World War 2 in Britain, and the test of time has shown that it made a decisive improvement in the country’s ability to maintain price stability.
A precedent in the opposite direction direction by the United States would dwarf the ramifications of what happened 28 years ago in the U.K. because the dollar is the linchpin of the international monetary system. In limited overnight trading because of the many countries still closed for holiday, the weighted DXY dollar index fell 1.1%, with individual losses of 1.4% against the euro and Swissie, 0.9% relative to the yen, 0.7% versus the Australian dollar and sterling, 0.6% vis-a-vis the kiwi, 0.4% against the Mexican peso and 0.3% versus the Canadian currency.
In the United States, which does not yet observe Easter Monday, stock futures are down today by around 1% or more. Stock exchanges in Asia closed down 1.6% in Thailand, 1.5% in Taiwan and 1.3% in Japan. The ten-year Treasury yields is five basis points higher. The price of Bitcoin and gold are 2.0% and 2.3% stronger, while that of oil fell 2.4% on global recessionary concerns.
The People’s Bank of China’s 1- and 5-year loan prime rates were left unchanged as expected at 3.1% and 3.6%, respectively, at the monthly fixing. They’ve been at those levels since 25-basis point cuts in each made last October. The predominant market them now is how the trade war with the United States will evolve and how that might impact real growth and Chinese inflation. Amid great uncertainty on those matters, central bank officials have kept monetary policy in a holding pattern, but fiscal policy has become more stimulative this year.
Indonesia’s $4.33 billion trade surplus in March was its widest since November, and the surplus of $10.9 billion in the first quarter of 2025 was 47% bigger than a year earlier.
The recent volatility of energy prices was a major factor moving producer prices in Estonia, which shot up 3.3% on month in February only to plunge 3.5% in March. Year-on-year PPI inflation went from zero percent in January to 6.1% in February and back down to 2.8% last month.
Another U.S. story being watched today is the revelation of an apparent second instance when Defense Secretary Hegseth may have shared confidential information in a signal chat transmission.
Copyright 2025, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: China’s 1- and 5-year Loan Prime Rates, death of Pope Francis, Trump and Powell strains
ShareThisYou can leave a response, or trackback from your own site.
