The dollar index (DXY00) today is up by +0.03%. The dollar today is posting modest gains after US Nov retail sales rose more than expected. Also, today’s jump in the 10-year T-note yield to a 3-1/2 week high has strengthened the dollar’s interest rate differentials. In addition, the weakness in stocks today has boosted liquidity demand for the dollar. Gains in the dollar were limited after US Nov manufacturing production rose less than expected.
US Nov retail sales rose +0.7% m/m, stronger than expectations of +0.6% m/m. Nov retail sales ex-autos rose +0.2% m/m, weaker than expectations of +0.4% m/m.
US Nov manufacturing production rose +0.2% m/m, weaker than expectations of +0.5% m/m.
The US Dec NAHB housing market index was unchanged from Nov at 46, weaker than expectations of an increase to 47.
The markets are discounting the chances at 95% for a -25 bp rate cut at the December 17-18 FOMC meeting.
EUR/USD (^EURUSD) today is down by -0.05%. The euro today is slightly lower due to a stronger dollar and after the German Dec IFO business climate index fell more than expected to a 4-1/2 year low. Also, dovish comments today from ECB Governing Council member Rehn weighed on the euro when he said interest rates will continue to head lower as inflation starts to stabilize around its 2% goal. Losses in the euro were contained after the German Dec ZEW expectations of economic growth index unexpectedly rose to a 4-month high.
The German Dec ZEW expectations of economic growth index unexpectedly rose +8.3 to a 4-month high of 15.7, stronger than expectations of a decline to 6.9.
The German Dec IFO business climate index fell -0.9 to a 4-1/2 year low of 84.7, weaker than expectations of 85.5.
ECB Governing Council member Rehn said, "The direction of the ECB's monetary policy is clear," as interest rates will continue to head lower as inflation starts to stabilize around its 2% goal.
Swaps are discounting the chances at 100% for a -25 bp rate cut by the ECB at its next meeting on January 30 and an 11% chance for a -50 bp rate cut.
USD/JPY (^USDJPY) today is down by -0.45%. The yen is moderately higher today after Monday’s slide to a 2-1/2 week low bolstered speculation that further weakness in the yen may trigger verbal intervention from Japanese authorities and add pressure on the BOJ to raise interest rates. Further upside in the yen appears limited with today’s jump in T-note yields and expectations for the BOJ to stand pat on interest rates when it meets on Thursday.
February gold (GCG25) today is down -15.20 (-0.57%), and March silver (SIH25) is down -0.242 (-0.78%). Precious metals today are moderately lower, with gold posting a 1-week low and silver posting a 2-week low. Today’s stronger-than-expected US Nov retail sales report pushed T-note yields and the dollar higher and may prompt the Fed to pause cutting interest rates, a bearish factor for precious metals. Silver prices also retreated after US Nov manufacturing production rose less than expected, a bearish factor for industrial metals demand. Also, long liquidation pressures are weighing on precious metals prices ahead of the results of the Tue/Wed FOMC meeting on Wednesday.
Demand for gold as a store of value increased today based on dovish comments from ECB Governing Council member Rehn, who said interest rates will continue to head lower as inflation starts to stabilize around its 2% goal. Also, expectations for the Fed to cut interest rates by -25 bp after the Tue/Wed FOMC meeting are bullish for precious metals. Finally, precious metals have safe-haven support from geopolitical risks after the recent collapse of the Syrian government and the escalation of hostilities in the Ukraine-Russia conflict.
