Dollar Slide Extends

Overview: The selling pressure on the greenback, evident last week, despite a series of stronger than expected economic reports, carries over into the new week's activity.

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The euro punched through the $1.20 cap that had blocked it last week, and the dollar is testing the JPY108 level, which it has not traded below since early March.  Most emerging market currencies are also firmer, and the JP Morgan Emerging Market Currency Index is moving higher for its fifth consecutive session after last week's 1% gain. The US 10-year benchmark yield is a couple basis points lower at 1.55%.  European yields are softer too.  Equities are more mixed.  Most Asia Pacific markets finished higher, led by China, Hong Kong, and Taiwan.  However, Tokyo was mixed, and the rising contagion in India has seen the Indian shares tumbled by nearly 2%, and the rupee is off 0.5% after selling off more than 2% last week.  European shares are edging higher, and the Dow Jones Stoxx 600 is trying to extend its advance into a fifth consecutive session.  US futures indices are nursing small losses.  On the back of a weaker dollar, softer rates, and increased volatility in the crypto space, gold is firmer.  At nearly $1790, the yellow metal is at its best level since late February.  Despite progress being reported in the talks to get the US and Iran back into treaty compliance, oil prices are steady  The June WTI contract is trading in about a 40-cent range on either side of $63.  

Asia Pacific

Japanese exports soared 16.1% year-over-year in March, reflecting the recovering world economy.  On a seasonally adjusted basis, exports rose 4.3% on the month.  Imports rose 5.7% year-over-year and almost 2% on a seasonally adjusted basis in March.  The net result was a JPY663.7 bln trade surplus, well above expectations.  Shipments to the US rose 4.9% and to the EU, 12.8%, which is the most in three years.  However, it was the recovery of exports to Asia that are most impressive.  Japan's exports to Asia jumped by nearly 22.5%, led by a 37.2% rise in exports to China.  While Japanese exports of autos, plastics, and semiconductor chips led the way, we continue to note exports of chip-making equipment to China, reflecting its capex cycle and drive to substitute imports with domestic production.  China's move is overdetermined.  It is partly a function of the larger import-substitution strategy and partly driven by US sanctions of China's largest chip producer (SMIC) and consumer (Huawei). 

Many reports in the western press have played up the threat posed by China's efforts to introduce a digital currency to the dollar's role.  We have played down such worries as symptomatic of a paranoia that exaggerates the demise of the dollar's role in the world economy.  Through the Great Financial Crisis, the Trump years of seeking a weaker dollar, and the shock of the pandemic, the dollar's role remains quite stable.  Li Bo, the Deputy Governor of the PBOC, indicated over the weekend that the digital yuan is, as we have suggested, more about domestic use rather than bolstering the yuan's internationalization. Central bank digital currencies are best to be thought of as a payment system than a separate currency.  The yuan is not convertible.  Chinese officials retain significant control over its fluctuation and use.  A digital form of the yuan does not overcome these restrictions.  

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Read more by Marc on his site Marc to Market.

Disclaimer: Opinions expressed are solely of the author’s, based on current ...

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Dr. Duru 3 weeks ago Contributor's comment

Any specific drivers for this surge of dollar weakness? Just last month, the US dollar index was breaking out above its 200DMA and looked ready to extend a comeback. Now, it's below its 50DMA, not just the 200DMA!