The dollar index (DXY00) on Tuesday rose by +0.31%. The dollar moved higher Tuesday after U.S. trade news showed an unexpected narrowing of the U.S. Nov trade deficit. Also, weakness in stocks on Tuesday boosted liquidity demand for the dollar.
The U.S. Nov trade deficit unexpectedly narrowed to -$63.2 billion from $64.5 billion in Oct, better than expectations of a widening to -$64.9 billion and a positive factor for Q4 GDP.
The markets are discounting the chances for a -25 bp rate cut at 5% for the next FOMC meeting on Jan 30-31 and a 67% chance for that -25 bp rate cut for the following meeting on March 19-20.
EUR/USD (^EURUSD) on Tuesday fell by -0.19%. Dollar strength on Tuesday weighed on the euro. Also, economic concerns undercut EUR/USD after German Nov industrial production unexpectedly declined for the sixth consecutive month. Losses in the euro were limited after the Eurozone Nov unemployment rate unexpectedly fell to match a record low, a sign of strength in the labor market that is hawkish for ECB policy.
ECB Governing Council member Centeno said the December inflation report for the Eurozone was "good news" and officials will decide when to cut interest rates "sooner than we thought until recently."
The Eurozone Nov unemployment rate unexpectedly fell -0.1 to match a record low of 6.4%, showing a stronger labor market than expectations of no change at 6.5%.
German Nov industrial production unexpectedly fell -0.7% m/m, weaker than expectations of +0.3% m/m, and the sixth consecutive month industrial production has declined.
Swaps are pricing in the chances for a -25 bp rate cut by the ECB at 2% for its next meeting on January 25 and 40% for the following meeting on March 7.
USD/JPY (^USDJPY) on Tuesday rose by +0.14%. The yen on Tuesday gave up an early advance and turned lower on yen-negative economic news that showed Japan Nov household spending fell more than expected and Tokyo Dec CPI eased more than expected, dovish factors for BOJ policy. Also, a rally in the Nikkei Stock Index Tuesday to a nearly 34-year high curbed safe-haven demand for the yen. The yen Tuesday initially moved higher after the BOJ indicated it would reduce monthly buying on long-term 10 to 25-year Japanese government bonds.
February gold (GCG4) Tuesday closed -0.50 (-0.02%), and Mar silver (SIH24) closed -0.219 (-0.94%). Precious metals on Tuesday settled lower as a stronger dollar weighed on prices. Gold was also weighed down from long liquidation pressures after long gold holdings in ETFs fell to a nearly 4-year low Monday. Silver prices were under pressure on signs of weakness in industrial metals demand after German Nov industrial production unexpectedly fell for the sixth consecutive month. Losses in gold were limited by dovish comments from ECB Governing Council member Centeno, who said good news on Eurozone inflation will allow the ECB to cut interest rates earlier than expected.
On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
