The Sounds of Chaos – Currency Thoughts

The Sounds of Chaos

May 22, 2025

In the wake of the tax-cutting and deficit-engorging bill approved by the U.S. House of Representatives last night,

• The 30-year Treasury bond yield rose as high as 5.154%, its most elevated level since mid-2007 just weeks before the start of the subprime financial market crisis that triggered the global great recession.
• Ten-year bond yields climbed another five basis points in Japan, four bps in the U.K. and Italy, three bps in France, and two bps in the United States, Germany and Spain.
• Bitcoin’s price has advanced 1.4% and set a new record higher earlier this morning of $111,886, 108% above its low last September 7th.
• Equity markets in the Pacific Rim fell today by 1.2% in Hong Kong and South Korea, 1.6% in Malaysia, and 0.8% in Japan.
• Major European stock markets have lost so far today 1.3% in France and 1.1% in the U.K., Germany and Italy.
• And the price of West Texas Intermediate oil declined 1.4%.

Dollar movements have been mixed, with gains overnight of 0.5% against the won, 0.3% versus the peso, and 0.2% relative to the euro, Aussie dollar and Turkish lira but losses of 0.3% vis-a-vis the yen 0.5% against the kiwi and 0.2% versus the Swiss franc.

U.S. new weekly jobless claims remained historically low last week, shrinking 2k to a 4-week low of 227k, but the Chicago Fed reported a 0.28-index point slide in its monthly national activity index to a 3-month low of -0.25 in April. Preliminary S&P Global-compiled U.S. purchasing managers survey results from May will be reported within the half hour. Such results for other economies released earlier today showed

• A six-month low in Euroland’s composite PMI reading of 49.5 in May. This return to contractionary territory (i.e. a score below 50) followed one of 50.4 in April and 50.9 in March. Euroland’s services PMI fell to a 16-month low of 49.8, outweighing the impact of a 35-month high in manufacturing of 48.8.
• Within the euro area, the composite PMI readings in Germany of 48.6 and France of 48.0 respectively constituted a 5-month low and a 2-month high.
• The preliminary British composite PMI printed at 49.4, which represents a 2-month high but the second sub-50 score in a row. The U.K. manufacturing PMI remains quite depressed at 45.1, and the services PMI of 50.2 barely had an expansionary pulse.
• India’s composite PMI improved 1.5 points to a highly robust and 13-month high of 61.2. Services and manufacturing growth quickened to their fastest paces in 14 and 11 months, respectively.
• Japan’s composite PMI fell back under 50 to a 2-month low in May of 49.8. Manufacturing edged up to 49.0, while services slid to a 2-month low of 50.8.
• The Australian composite PMI fell to a 3-month low of 50.6, reflecting a six-month low in services and an unchanged reading in the manufacturing sector.

Published minutes from the European Central Bank Governing Council’s policy meeting of April 16-17 make the interesting observation that “While the inflationary effects of the proposed tariffs might differ for the United States and Europe, the pandemic experience had shown that, despite different weights attached to demand versus supply factors, in the end inflation developments in the two economies had been quite synchronous, and the same might occur again this time. Overall, this pointed to upside risks to inflation in the medium to long term.” Nonetheless, in view of short-term disinflation that has progressed somewhat faster than assumed, officials felt safe to enact a further 25-basis point cut in their interest rate to guard against “negative outcomes and avoided contributing to additional uncertainty in times of financial market volatility. In addition, a cut at the present meeting could be seen as frontloading a possible cut at the June meeting.”

Today the Central Bank of Sri Lanka also reduced its policy interest rate by 25 basis points from 8% to 7.75%. In light of a rise in Sri Lankan consumer price deflation of -2.0% in April versus -4.2% just two months earlier, analysts were not expecting a cut. The previous two moves were done last November in in July 2024. Officials anticipate that inflation will turn positive again quite soon and believe that gradual and measured cuts remained appropriate for “steering inflation towards the target of 5%” eventually. The new rate levels of 7.75% is half the peak of 15.5% in the second quarter of 2023. Sri Lankan inflation crested at 67.4% in September 2022.

Just In: U.S. existing home sales dipped 0.5% further to 4.00 million last month from 4.02 mln in March and 4.27 million in February at an annual rate. The report noted that “Home sales have been at 75% of normal or pre-pandemic activity for the past three years, even with seven million jobs added to the economy.” A separate release revealed a greater-than-anticipated rebound in the composite U.S. purchasing managers index to 52.1, according to the preliminary May survey, from 50.6 in April and 53.5 in May.

Highlights among other data reported this Thursday include

• An upward revision of year-on-year Mexican GDP growth to 0.8% last quarter. Quarterly growth was unrevised at 0.2%.
• Canadian producer prices fell 0.8% in April, but year-on-year PPI inflation rebounded to a 2-month high of 2.0%.
• In the 12 months ending in April 2025, consumer prices rose 1.4% in Malaysia (matching March’s 45-month low) and 2.0% in Hong Kong, a 3-month high. Irish wholesale prices fell 3.6%, their biggest on-year drop in a year and a half.
• French business confidence sank to a 3-month low of 95.8 in May, remaining below its long-term average. The service sector and manufacturing indices printed at 10- and 2-month lows, outweighing the impact of higher readings in construction, retail and wholesale activities. The labor market index fell to a 3-month low, too.
• Core domestic Japanese machinery orders in March far outperformed expectations, leaping 13.0% on month and 8.4% on year.

Copyright 2025, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

Tags: Central Bank of Sri Lanka, ECB minutes, French business confidence, Mexican GDP and Canadian PPI, preliminary composite PMI results

ShareThis

This entry was posted
on Thursday, May 22nd, 2025 at 7:30 am and is filed under New Overnight Developments Abroad – Daily Update.
You can follow any responses to this entry through the RSS 2.0 feed.