The dollar index (DXY00) on Monday fell by -0.20%. The dollar was under pressure Monday after T-note yields gave up an early advance and turned lower, weakening the dollar’s interest rate differentials. Also, expectations that Tuesday’s U.S. Oct CPI report will show an easing of inflation expectations weighed on the dollar. In addition, lower T-note yields undercut the dollar. A supportive factor for the dollar was weakness in the yen as the yen slid to a 1-year low against the dollar on Monday.
The markets are discounting a 14% chance for a +25 bp rate hike at the next FOMC meeting on Dec 12-13 FOMC and a 28% chance for that +25 bp rate hike at the following FOMC meeting on Jan 30-31, 2024. The markets are then expecting the FOMC to begin cutting rates by mid-2024 in response to an expected slowdown in the U.S. economy.
EUR/USD (^EURUSD) on Monday rose by +0.15%. The euro rose Monday on dollar weakness and on hawkish comments from ECB Vice President Guindos, who said it is "premature" to discuss interest rate cuts. On the negative side, dovish comments from ECB Governing Council member Kazaks limited gains in EUR/USD when he said that he could favor no additional tightening from the ECB.
ECB Governing Council member Kazaks said he "could share the view that further tightening from the ECB seems to have become less necessary."
ECB Vice President Guindos said it is "premature" to discuss interest rate cuts as "we expect a temporary rebound in inflation in the coming months as the base effects from the sharp increase in energy and food prices in autumn 2022 drop out."
USD/JPY (^USDJPY) on Monday rose by +0.08%. The yen on Monday was under pressure and posted a new 1-year low against the dollar. Concerns that the BOJ will maintain QE and negative interest rates weighed on the yen after Monday’s news showed Japan’s Oct producer prices were weaker than expected, and Oct machine orders fell for the tenth consecutive month. The yen recovered from its worst levels Monday when T-note yields gave up an early advance and turned lower.
Japan Oct machine tool orders fell -20.6% y/y, the biggest decline in 4 months, and the tenth consecutive month orders have declined.
Japan's Oct PPI fell -0.4% m/m and rose +0.8% y/y, weaker than expectations of unch m/m and +0.9% y/y, with the +08% y/y increase the smallest year-on-year increase in 2-1/2 years.
December gold (GCZ3) Monday closed up +12.50 (+0.65%), and Dec silver (SIZ23) closed up +0.077 (+0.35%). Precious metals prices Monday recovered from early losses and posted moderate gains. A weaker dollar on Monday was bullish for metals. Also, a decline in global bond yields on Monday supported metals. In addition, precious metals found support on expectations that Tuesday’s U.S. Oct CPI report will show an easing of price pressures, which could prompt the Fed from further tightening monetary policy.
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.
