Little Resolution to a Variety of Uncertainties Afflicting Investor Decisions – Currency Thoughts
Little Resolution to a Variety of Uncertainties Afflicting Investor Decisions
March 24, 2025
(199) The dollar hardly moved against most other major currencies, sliding 0.2% against the Swiss franc, Mexican peso, Australian dollar and sterling, holding flat versus the Canadian dollar, but rising 0.2% relative to the South Korean won and New Zealand dollar. Bigger gains of 0.4% and 0.6% occurred overnight against the Japanese yen and Turkish lira, respectively.
A five-basis point advance of the 10-year U.S. Treasury yield thus far today exceeds gains of two basis points in the German bund and Japanese JGB yields and one basis point in 10-year French and Spanish sovereign debt yields. The British gilt yield is a bp lower.
Prices for Bitcoin (+1.8%), WTI oil (+0.6%) and gold (+0.3%) all show gains so far today.
Key stock markets around the Pacific Rim closed up 1.4% in India, 0.9% in Hong Kong and 0.2% in China but down by 1.0% in Indonesia and 0.2% in Japan. Key U.S. stock futures have posted gains of 1-1.5% in pre-open action, while European bourses are narrowly mixed.
There has not been a breakthrough in the twin wars in Gaza and Ukraine despite behind-the-scenes diplomatic efforts to end hostilities.
Details of what U.S. President Trump will do in his tariff war, which is set to escalate a week from Wednesday keep bouncing around. He’s dangled the possibility of “some flexibility,” and some news reports claim that sector-specific levies are not likely to accompany reciprocal like-for-like tariffs to be announced then, which has been dubbed “Liberation Day.” Another report claims that tariff hikes on April 2 will apply only to those 15 or so trading partners with unacceptably big bilateral trade surpluses against the United States.
Two important elections are now on investors’ radar. Canadian Prime Minister Carney, who was only sworn in a little over a week ago, called snap parliamentary elections for April 28th. And in Australia, where the 2025 budget is to be presented by Treasurer Chalmer, national elections must be held no later than May 17.
On the central bank watching front,
Officials at the Central Bank of Turkey, who early this month, cut the one-week repo rate by 250 basis points to 42.5%, were forced by political and financial market instability to call an unscheduled Monetary Policy Committee meeting and then announced a 200-basis point hike to 46.0% in their overnight lending rate. Taking a page from the Russia’s strongman handbook, Turkish President Erdogan had his main political rival, Istanbul’s mayor, arrested. That controversial action has generated losses in Turkey’s stock market and depressed the lira, which fell as low as 38 per dollar today. The aforementioned one-week repo rate, which is the central bank’s main monetary policy tool, was left unchanged at 42.5%, but officials are warning that “monetary policy stance will be tightened in case a significant and persistent deterioration in inflation is foreseen.”
Board members at the Central Bank of Chile agreed unanimously agreed to keep their key interest rate unchanged at 5.0%. Such had been reduced 300 basis points in the second half of 2023 and 325 bps in 2024, as Chilean inflation receded from 14.1% in August 2022 to as low as 3.7% a year. At 4.7% last month, however, inflation remained above the medium-term 2-4% target range. In all too familiar language shared by many monetary authorities around the world, the first paragraph of the Board’s explanation introduces a whole different reason for policy caution:
Uncertainty about the outlook for the global economy has increased significantly since the previous Meeting, in the face of rising geopolitical risks and various tariff announcements by the U.S. Administration and the responses of affected countries. This has particularly affected growth prospects for the U.S. economy, with more limited impacts on the rest of the world. These measures have also raised inflation expectations in the United States. In this scenario, the Fed paused its rate cutting cycle in its last meetings.
Data released this Monday were dominated by preliminary March purchasing manager survey findings:
- Australia‘s composite PMI printed at a 7-month high of 51.3. The manufacturing index rose 2.2 points to a 29-month high of 52.6, while services reading of 51.2 reversed all of reduction between January and February.
- Japan‘s composite PMI sank to a 37-month low of 48.5 from 52.0 in the prior month. The manufacturing and service reading fell to 12- and 9-month lows of 48.3 and 49.5, indicating a deterioration of conditions.
- India‘s composite PMI fell to a 4-month low but at 58.6 still reflects very dynamic growth. The manufacturing index actually increased but was neutralized by a 2-month low in services.
- Britain‘s composite PMI improved to a 6-month high of 52.0, due to a 2.2-point rise of services to a 7-month high. Compilers of the data downplayed the bottom-line result, noting reasons for being guarded about future prospects.
- Euroland‘s composite PMI rose to a 7-month high of 50.4. Manufacturing output expanded for the first time in two years, and service sector price inflation slowed. The U.S. tariff war is ironically forging a more unified European front, both politically and economically. Germany’s composite PMI (50.9) reached a 10-month high, while the French composite measure bounced from February’s 13-month low of 45.1 to a 2-month high of 47.0.
- Three-month high readings in the Global S&P U.S. composite, manufacturing and services PMIs of 53.5, 49.8 and 54.3 were accompanied by indications of downwardly tilted near-term economic risks.
Lebanese consumer price inflation, which peaked at 268% in April 2023, fell to a 3-month low of 15.6% this past February.
CPI inflation Singapore of 0.9% last month was a a 48-month low and down from 1.2% in January and a peak of 7.5% in the third quarter of 2022.
Finnish producer price inflation increase to a 23-month high in February but was still very low at 0.7%.
Chilean PPI inflation settled back to 8.6% last month from 12.7% in January.
The Swiss current account widened from CHF 42 billion in 2023 to 91 billion francs last year.
Somewhat dovish recent remarks noting disinflationary progress expressed by European Central Bank officials have created new hope that interest rates could be lowered still lower in spite of risks related to U.S. tariff policy.
Copyright 2025, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: Central Bank of Chile, Central Bank of Turkey, preliminary purchasing manager survey findings March 2025
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