Higher Long-Term Interest Rates But Scant Changes So Far Today in Dollar or Equities – Currency Thoughts
Higher Long-Term Interest Rates But Scant Changes So Far Today in Dollar or Equities
May 28, 2025
The 10-year Japanese JGB yield climbed five basis points this Wednesday back to 1.50% despite a warning from Bank of Japan Governor Ueda that volatile long-term rates carry risk.
Other 10-year sovereign debt yields have risen by 3 basis points in the U.K., 2 bps in the United States, and a basis point in Germany, France and Spain. Last week’s 30-year fixed mortgage rate of 6.98% was its highest since the week of the Trump inaugural four months ago, and mortgage applications fell for a second straight week.
There’s been no net change in the dollar today against either the yen or euro, and the U.S. currency’s weighted DXY index is up just 0.1%. Equity markets closed unchanged today in Japan and China and with only small net movements in India, Indonesia, Taiwan or Australia. European stock markets and pre-open U.S. stock futures are little changed as well.
In New Zealand on a day when the central bank there cut its Official Cash Rate by another quarter percentage point, however, the stock market fell by 1.7%.
The reduction to 3.25% from 3.50% in policy interest rate of the Reserve Bank of New Zealand returns such to its lowest level since October 2022 and brings the cumulative decline to 225 basis points from a peak of 5.50% sustained from September 2023 until August 2024. The 5-1 vote to cut the rate today included one dissent in favor of leaving the OCR at 3.5%, but an extensive statement explaining the decision explicitly “projects that the OCR will decline further, supporting the recovery in economic activity.” Tariffs pose downside risks to growth, which last year was already weak. Although consumer price inflation last quarter accelerated to 2.5%, that lies within the 1-3% target range, and officials expect in-target inflation to continue. Nonetheless, the outlook surrounding the varied possible tariff scenarios is fraught with uncertainty. A rate hike at the next review in July does not seem likely.
As expected, the key central bank interest rate of the National Bank of Hungary was retained at 6.5% after yesterday’s policy review. Such has not moved since a 25-basis point cut last September culminated a halving of the peak 13.0% rate level maintained from September 2022 until October 2023. Hungarian CPI inflation last month of 4.2% was marginally above the 2-4% target range.
Among price data reported around the world today, investors received evidence of decelerating producer price pressure.
- France’s PPI tumbled 4.3% in April after a 0.5% monthly drop in March, which resulted in a deeper 0.8% year-on-year decline.
- Malaysian producer prices dropped 1.0% on month and 3.4% from April 2024.
- Belgium’s PPI slumped 2.0% on month and posted a 0.5% year-on-year decline versus a 2.2% rise in the year to March.
- A 1.7% monthly decline in German import prices last month exceed expectations and resulted in the lowest year-on-year reading (-0.4%) in six months.
- Corporate service prices in Japan had recorded their biggest increase in over eight years (3.3% in both February and March), but that settled back to 3.1% last month.
Icelandic consumer price inflation slowed 0.4 percentage points to 3.8% in May, matching March’s 31-month low.
A 0.1% quarterly rise in French GDP last quarter after -0.1% in the final quarter of 2024 reconfirmed an earlier estimate, but the year-on-year growth rate was revised downward from 0.8% to a 17-quarter low of 0.6%.
Belgian GDP rose 0.4% on quarter and 1.1% on year in 1Q 2025, which matched earlier estimates.
Like many other estimates of investor confidence in Europe, the ZEW monthly measure of sentiment toward the Swiss economy depicts relief at President Trump’s postponed sky-high tariffs. After April’s 29-month low of -51.6, the index rose to a 2-month high of -22, which even so constitutes this year’s second worst result.
In comparisons of April 2024 to April 2025, retail sales rose 5.3% in Sweden, 3.2% in Norway, and 0.9% in Slovenia.
A massive cloud of uncertainty is likely to permeate minutes from the May 6-7th FOMC meeting being published today at 14:00 EDT. Fed policy relaxation has been in an extended pause during this second presidency of Donald Trump. Previously, the federal funds rate was cut by a combined full percentage point at the final three scheduled reviews in 2024 to its present target range of 4.25-4.5%.
Copyright 2025, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: FOMC Minutes, French GDP, German import prices, Japanese corporate service prices, National Bank of Hungary, Reserve Bank of New Zealand
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