Suspense Surrounding Several Issues – Currency Thoughts
Suspense Surrounding Several Issues
August 14, 2025
A number of key questions remain unanswered. What will be the result of tomorrow’s Putin-Trump talks in Alaska regarding the war in Ukraine? Will higher tariffs lead to a one-time price adjustment or an ongoing acceleration of inflation driven by so-called second-order effects? How much will the Federal Reserve cut interest rates in the second half of 2025? In the ongoing remaking of America in President Trump’s own image, the latest frontier of chance involves the cities. Troops have been deployed in Washington D.C., and folks wonder if this will be a harbinger of similar actions in other cities where the federal government is not lawfully endowed with direct governmental responsibilities.
Meanwhile, today’s July U.S. producer price report produced the first significant vindication of economists around the world, who overwhelmingly have expected tariff tensions to spawn higher inflation and softer economic growth. The total and non-food & energy PPI indices each jumped 0.9% on month, not 0.2% as anticipated. In the total index’s instance, it was the largest monthly increase in 39 months and resulted in a 0.9-percentage point leap in the 12-month increase to a 5-month high of 3.3%. So-called core inflation of 3.7% reached a 4-month high. Service sector items increased 1.1% on month in July, pointing to a rippling effect as other prices adjust to the tariff shock.
Weekly new jobless insurance claims in the United States fell by 3k last week to 224k, suggesting continuing labor market resilience. Outstanding claims also slipped in the latest reported week.
In world currency markets, the PPI news lent the dollar fresh support. A Federal Reserve interest rate cut of more than 25 basis points, which Treasury Secretary Scott Bessent has requested, now seems doubtful, but Powell’s press conference could still dangle the possibility of faster stimulus in the future. The dollar strengthened overnight by 0.9% against the New Zealand dollar and Mexican peso, 0.8% versus the Korean won, 0.7% relative to the Australian dollar, 0.4% vis-a-vis the euro, 0.3% against the Canadian dollar, 0.2% against sterling but just 0.1% relative to the yen.
Of the four most watched U.S. stock market indices, only the small cap-intensive Russell 2000 took a large initial hit from the PPI news. Earlier in the day, stock markets in the Pacific rim had dropped 1.2% in Japan and 0.5% in China and Taiwan. European share prices have risen 0.8-1.2% 0n major Continental bourses. Bitcoin, down 3.7% today and 4.6% under Wednesday’s all-time high, reacted quite negatively, while oil climbed 1.3% ahead of the Putin-Trump summit.
The second estimate of Euroland GDP and employment growth last quarter made no revisions to earlier revelations. Employment in the euro area went up 0.1% on quarter and matched the 0.7% year-on-year advance of the previous two quarters. Real GDP in Euroland advanced 0.1% on quarter and 1.4% on year. The Italian and German economies shrunk 0.1% last quarter, but Spanish and French GDP posted quarterly increases of 0.7% and 0.3%.
Euroland industrial production during June was also reported today. A 1.3% slump in June reversed May’s 1.1% rise and left output only 0.2% above its June 2024 level. Production on average in the second quarter was 0.3% below the first quarter level.
Among British data releases today,
- Monthly GDP outpaced expectations, rising 0.4% from May to June and by 1.4% compared a to year earlier. Quarterly GDP growth in 2Q slowed to a 4-quarter low of 0.3%. GDP in 2Q 2025 was just 1.2% higher than a year earlier.
- The British house price balance measure compiled by the Royal Institute of Charter Surveyors printed at a one-year low in July.
- Industrial production in the U.K. rose 0.7% in June (most since February) but was just 0.2% above a year earlier.
- Construction output increased 1.5% between June 2024 and June 2025.
- Labor productivity last quarter sank 0.6% on quarter and 0.8% from the second quarter of 2024.
- The goods and services trade deficit of GBP 5.61 billion in June was the largest gap in four months and 24% wider than in June 2024. The deficit generated by traded goods, at GBP 22.2 billion, exceeded GBP 20 billion for a fifth straight month.
Australian labor market figures in July revealed a 0.1 percentage point downtick to 4.2%, a 24.5k increase in jobs (most in 3 months), and unchanged labor market participation of 67.0%.
Consumer price inflation in France, Sweden and Finland last month were confirmed at 1.0%, 0.8% and 0.2%, respectively. Polish CPI inflation fell a percentage point below June’s reading to a 13-month low of 3.1%, but Croatian CPI inflation advanced further to a 16-month high of 4.1%.
The combined Swiss producer price and import price index fell 0.2% on month and by 0.9% on year (a 7-month low) in July. Import prices were 2.8% lower than a year before, while domestic producer prices dropped 0.3%.
The Central Bank of Norway’s policy interest rate was left unchanged at 4.5%. There has been just a single cut of 25 basis points so far following a peak of 4.5% maintained from December 2023 until June 2025. Norwegian CPI inflation has risen from 2.2% at end-2024 to a 5-month high of 3.3% last month and is more than a percentage point above target. “The policy rate forecast we presented in June indicated one or two additional rate cuts in the course of the year. We have not drawn up new forecasts now, but the information we have received so far indicates that the outlook for the Norwegian economy has remained broadly in line with the outlook in June. The uncertainty surrounding the outlook is greater than normal,” according to a released statement.
Copyright 2025, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: Australian unemployment, Bank of Norway, British GDP and trade balance, Euroland GDP and employment, U.S. producer prices
ShareThisYou can leave a response, or trackback from your own site.
