Dollar Has Declined on Each of the Two Days of Trump’s Presidency – Currency Thoughts
Something to Watch: Dollar Has Declined on Each of the Two Days of Trump’s Presidency
January 22, 2025
Significant dollar losses on Tuesday were extended overnight. The dollar fell 0.5% against the Mexican peso, 0.4% versus China’s yuan, 0.2% relative to the euro, yen, won and Aussie dollar, and 0.1% vis-a-vis the Swiss franc and sterling. These moves may merely represent a correction from earlier euphoria over the incoming business-friendly administration and the news that initial tariff hikes will not be as steep as once insinuated.
Or perhaps, the dollar’s setback is a harbinger of the new leadership’s desire for a more price competitive U.S. exchange rate. Reducing the U.S. trade deficit is a top economic priority of President Trump. Tariffs are one policy tool to promote that goal. Another is taking action or even inaction that leads investors to believe that a controlled dollar decline is being sought. Verbal intervention by former President Carter’s Treasury Secretary Michael Blumenthal and the Under Secretary for International Affairs C. Fred Bergsten in 1977 helped send the dollar lower. Alternatively, President Reagan in 1981 applauded a strengthening dollar as market validation that his economic policies were the correct ones. And again in the mid-1990s, Treasury Secretary Robert Rubin made dollar appreciation from a perceived undervalued level a main economic goal. Time and again, changes in presidential administrations have led to dollar reversals.
In other market developments overnight, 10-year sovereign debt yields fell three basis points in France and two bps in Spain and Italy but were little changed in the United States, Japan, Germany or Great Britain. Share prices in the Pacific Rim fell 1.6% in Hong Kong and 0.9% in China but rose 1.6% in Japan, 1.2% in South Korea and 1.0% in Taiwan. The German Dax and Paris CAC have gained at least 1.0%, but the British FTSE is only marginally firmer. U.S. stock futures are up moderately, led by the tech-intensive Nasdaq. Oil prices are unchanged. Gold is up slightly, and Bitcoin is down 0.8% but holding onto a beachhead above the psychological $100k level.
February 1st will be the day when U.S. tariff hikes start to be imposed. While Mexico and Canada face 25% levies, China’s reportedly will be about 10%.
U.S. mortgage applications, which in the week of January 10 had jumped 33% (most since the pandemic), went up 0.1% last week. The 30-year fixed mortgage rate only retreated 7 basis point to 7.02% from the prior week’s 8-month high.
Among reported price data reported this Wednesday, New Zealand consumer price inflation last quarter matched the 14-quarter low of 2.2% in 3Q 2024. Such had peaked at 7.3% in the second quarter of 2022. South African CPI inflation rose to a 3-month high of 3.0% in December, 0.2 percentage points above October’s 32-month low. Polish producer price inflation, which had previously imploded from 25.6% in mid-2022 to -10.6% by January 2024, rose 1.2 percentage points to a 17-month high of -2.6% last month. Irish wholesale price inflation increased to an 8-month high of 3.3% in December, having ranged from as low as -14.3% in December 2020 to as high as +13.6% in October 2022. Malaysian CPI inflation dipped 0.1 percentage point to an 11-month low last month of 1.7%.
Consumer confidence in South Korea bounced above November’s 25-month low of 88.2 to a 2-month high reading last month of 91.2.
In the Netherlands, however, consumer sentiment slid another index point to a 10-month low in December.
Stronger-than-projected South African retail sales in November were 7.7% higher than a year earlier, their best such gain in 28 months.
Central bank interest rate reviews in Malaysia and Azerbaijan resulted in no changes. The Central Bank of Malaysia‘s policy rate has been at 3.0% since a 25-basis point hike in May 2023 culminated 125 basis points of tightening over a one-year period. Officials expect growth in the coming year to extend last year’s domestic demand-led pace and foresee inflation staying contained as well as a stable ringgit around the current 4.46 per dollar exchange rate.
The Azerbaijani refinancing rate had crested at 9.0% in May-October 2023. Half percentage point reductions of 50 basis points each were implemented by central bank officials in October and November 2023 and followed by three 25-basis point additional cuts early in 2024. But the policy rate has stayed at 7.25% ever since against the backdrop of rising inflation. Inflation had slowed from 15.6% in October 2022 to zero percent in April 2024 but printed at a 15-month high of 4.9% last month. That was above the mid-point of 2-6% target.
Just In: Canadian producer price inflation had swung into positive territory in November for the first time since February 2023 and last month nearly doubled from 2.2% to a 23-month high of 4.1%.
Copyright 2025, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: Canadian producer prices, Central Bank of Azerbaijan, Central Bank of Malaysia, Dutch and South Korean consumer sentiment, South African and New Zealand CPI, tariff and dollar policy
ShareThisYou can leave a response, or trackback from your own site.
