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The dollar kept its grip tight after Fed officials dropped their February 19 meeting minutes. Euro traders watched their currency stumble while the greenback flexed its muscles across global markets.
Fed minutes showed several officials pretty worried about inflation sitting above that 2% target they want to hit. Rate hikes look likely now. The dollar jumped on this news, and investors can’t get enough of it right now. Money flows keep favoring the greenback as traders bet the Fed will move faster than other central banks. Wall Street analysts said the minutes were more hawkish than expected, with officials discussing aggressive moves to cool down price pressures.
Euro hit $1.067 yesterday. Not good.
The European Central Bank can’t match the Fed’s pace, and everyone knows it. Euro zone inflation data from last week showed prices rising, but the ECB seems hesitant to act as quickly as American officials. German bond yields stayed flat while U.S. Treasury yields climbed higher. European banks reported weaker earnings this quarter, adding pressure on the region’s currency. Mario Draghi’s former policies still haunt the ECB, with officials struggling to unwind years of ultra-loose monetary policy without crashing their economy.
British pound held near $1.24 despite all the chaos across the pond. Brexit fallout continues to weigh on UK markets, but the Bank of England’s recent rate hike gave sterling some support.
Yen dropped to 135.60 per dollar as Japan’s central bank stuck with its easy money policies. Bank of Japan Governor Haruhiko Kuroda said last week they’ll keep rates low until wages rise significantly. Japanese workers haven’t seen real wage growth in decades, making the BOJ’s job incredibly difficult. Toyota and other major exporters love the weak yen, but consumers pay more for imported goods.
Australian dollar climbed to $0.73 after strong jobs numbers came out. Unemployment fell to 3.7% in January, the lowest level since the 1970s. Reserve Bank of Australia officials met behind closed doors this week to discuss whether they need to raise rates faster. Mining companies like BHP Billiton reported strong profits, boosting confidence in Australia’s commodity-driven economy. But housing prices in Sydney and Melbourne keep falling, creating headaches for policymakers.
Central banks worldwide are scrambling to catch up with the Fed’s hawkish turn.
Market watchers want more data before making big bets. U.S. employment numbers drop next Friday, and inflation data comes the week after. European Central Bank President Christine Lagarde speaks at a conference in Frankfurt on February 25. Her comments could move euro markets if she hints at faster rate hikes. German factory orders fell 2.7% last month, showing Europe’s largest economy is slowing down. French President Emmanuel Macron’s approval ratings dropped again, adding political uncertainty to the mix. See also: Gold Bounces Back After Tuesdays Brutal.
ECB officials didn’t comment after the Fed minutes came out. Traders are guessing what they’ll do next.
Canadian dollar rose to 1.27 against the greenback after inflation data showed prices climbing 0.1% in January. Bank of Canada Governor Tiff Macklem faces pressure to act more aggressively. Oil sands producers in Alberta are making huge profits with crude prices high, but housing affordability in Toronto and Vancouver keeps getting worse. Canadian household debt ratios hit record levels last year, making rate hikes risky for consumers.
Swiss franc stayed put at 0.92 per dollar. Swiss National Bank Chairman Thomas Jordan said February 18 they’ll keep fighting inflation no matter what. Switzerland’s economy depends heavily on exports, so a strong franc hurts manufacturers. Nestle and other Swiss companies reported currency headwinds in their latest earnings calls.
Brazilian real dropped to 5.15 per dollar as political drama heats up again. President Jair Bolsonaro’s approval ratings keep falling ahead of this year’s election. Brazil’s central bank meets February 25, and traders expect another big rate hike. Inflation hit 10.4% last month, the highest level in years. Coffee and soybean exports are booming, but ordinary Brazilians struggle with rising food costs.
Gold fell to $1,850 per ounce as dollar strength hurt the precious metal. Investors dumped gold ETFs and bought Treasury bills instead. Mining companies like Barrick Gold saw their shares drop 3% yesterday. Central bank gold purchases slowed in the fourth quarter, according to World Gold Council data released this week.
Oil prices climbed with Brent crude hitting $85 per barrel on February 19. China’s reopening after COVID lockdowns is boosting demand forecasts. Goldman Sachs analysts think oil could reach $95 this summer if Chinese consumption keeps growing. OPEC+ members are sticking with their production plan despite pressure from the Biden administration to pump more crude.
People’s Bank of China releases manufacturing data next week. Factory output numbers will show whether China’s economy is really bouncing back. Export orders from Chinese manufacturers have been weak lately, hurting global trade flows. Shanghai port congestion is getting worse again as COVID cases rise in some districts. This follows earlier reporting on Silver Crashes to as Fed.
Bitcoin held around $43,000 while crypto traders watched SEC Chairman Gary Gensler’s latest comments. Regulatory uncertainty keeps institutional investors on the sidelines. El Salvador’s bitcoin experiment isn’t going well, with the country’s bonds trading at distressed levels. Coinbase reported a big loss last quarter as trading volumes collapsed.
Indian rupee traded at 75.30 per dollar after the Reserve Bank of India kept its accommodative stance February 18. Governor Shaktikanta Das wants to support growth, but inflation is becoming a problem. Software exports are booming, but manufacturing is struggling. Tata Motors and other automakers can’t get enough computer chips to meet demand.
Turkish lira weakened to 13.75 per dollar as economic problems mount. President Erdogan’s unorthodox policies keep scaring investors away. The central bank meets February 23, but nobody expects major changes. Tourism revenue dropped 40% last year compared to pre-pandemic levels. Construction companies are going bankrupt as the lira’s collapse makes imported materials too expensive.
South African rand fluctuated around 15.50 per dollar after Finance Minister Enoch Godongwana’s budget speech February 18. Government debt keeps growing while economic growth stays weak. Mining companies are doing well with commodity prices high, but unemployment hit 35% last quarter. Load shedding from the power grid is getting worse, hurting manufacturers and small businesses.
Mexican peso stayed steady at 19.80 per dollar. Bank of Mexico Governor Alejandro Díaz de León said they’re focused on fighting inflation. The central bank meets February 24, and traders expect a rate hike. Remittances from Mexican workers in the U.S. hit record levels last year, supporting the peso. Auto exports to America are booming, but supply chain problems persist.
Russian ruble bounced to 75.60 per dollar after the central bank hinted at rate hikes February 18. Geopolitical tensions with Ukraine keep markets nervous. Oil and gas exports are generating huge revenues for Moscow, but sanctions are limiting investment options. The ruble could strengthen more if energy prices stay high.
