Dollar Losses Extended

The US dollar fell to record lows against the Swiss franc and has fallen to new multi-year lows against the yuan.  Pressure remains against most of the major currencies.  The trend continues to be your friend, until it is not.  Today is the ninth consecutive day that the euro is gaining against the dolllar. 

The Swiss franc turned better bid following comments from the central bank and KOF data showing continuing strengthening of the economy depsite the appreciation of the Swiss franc.   The SNB reported CHF1.9 bln profits in Q1 and this could largely be acocunted for from what appears to be sales of some of the toxic assets it had bought from UBS a few years ago. 

Turing to the euro zone, there are three key points:  First, euro zone money supply M3 accelerated slightly in March to 2.3% from 2.0% year-over-year, but is still around half of the 4.5% reference rarte and private. 

Private sector loan growth slowed to 2.5% year-over-year from 2.6% in Feb and 2.8.% expected.   Money supply growth, the second pillar of monetary policy, is not flashing the inflation risk alarms, which is one of the reasons I think the rate hike and those that are still to be delivered may very well turn out to be a policy mistake in the sense of choking off the recovery, exacerbating the euro's rise and aggravating the challenges of the periphery and euro zone cohesion. 

Second, Germany reported a much weaker than expected retail sales report.  The 2.1% month-over-month decline may have been distorted by the Easter holdiay, it follows a 0.4% decline in Feb and looking at the month-over-month data, German retail sales rose 0.2% in Q4 10 and fell -1.7% in Q1.   Germany exports around 40% of what it produces.   It is also not just Germany that is reporting soft retail sales.  Yesterday France reported a contraction in household consumption.  Sweden, not a member of the euro zone, reported a 0.8% decline in retail sales, the fifth decline in the a row and well below marekt expectation of a 0.3% increase.  

Third, Spain and Italy reported CPI figures.  The fact that their inflation is above the euro zone average and German in particular illustrates one of the points I think is important but generally under appreciated:  the lack of competitiveness--which also is inssufficient access to effective demand, insufficient aggregate demand--continues.   This in turn means that while European officials are trying to strengthen the institution structure in the fiscal and financial sectors, the foundation is not solid.