The dollar index (DXY00) on Thursday fell by -0.51%. The dollar was under pressure Thursday due to weaker-than-expected U.S. GDP and Philadelphia Fed reports, which were dovish for Fed policy. Also, the strength in stocks on Thursday reduced liquidity demand for the dollar.
Thursday’s U.S. economic news was mixed for the dollar. On the bearish side, the Dec Philadelphia Fed business outlook survey unexpectedly fell -4.6 to -10.5, weaker than expectations of an increase to -3.0. Also, the U.S. Q3 GDP report was revised downward by -0.3 to 4.9% (q/q annualized), weaker than expectations of no change at 5.2%. In addition, Nov leading indicators fell -0.5% m/m, the twentieth consecutive month the indicators have declined. Conversely, weekly initial unemployment claims rose +2,000 to 205,000, showing a stronger labor market than expectations of an increase to 215,000.
The markets are discounting the chances for a -25 bp rate cut at 14% for the next FOMC meeting on Jan 30-31 and at 94% for the following meeting on March 19-20.
EUR/USD (^EURUSD) on Thursday rose by +0.49%. A weaker dollar Thursday sparked short covering in the euro. Also, hawkish comments from ECB Vice President Guindos boosted the euro when he said Eurozone inflation must converge toward 2% before the ECB can cut interest rates.
ECB Vice President Guindos said, "Once we see inflation is clearly converging in a stable manner to our target of 2%, monetary policy might then start to ease. But it's still too early for that to happen."
Swaps tied to ECB meeting dates are discounting the chances for a -25 bp rate hike at 2% for the January 25 ECB meeting and 45% for the March 7 meeting.
USD/JPY (^USDJPY) on Thursday fell by -0.90%. Thursday’s -1.59% decline in the Nikkei Stock Index boosted demand for the yen as a safe haven. The yen also found support after the Japanese government lifted its forecast for price gains, including fresh food, to 2.5% in the fiscal year starting in April, up from a previous estimate of 1.9% and above the BOJ’s 2.0% price target.
February gold (GCG4) Thursday closed +3.60 (+0.18%), and Mar silver (SIH24) closed -0.046 (-0.19%). Gold and silver prices Wednesday settled mixed. A weaker dollar Thursday was supportive of metals prices. However, a rally in stocks reduced safe-haven demand for precious metals. Thursday’s U.S. reports on Q3 GDP and the Dec Philadelphia Fed business outlook survey were weaker than expected, which raised expectations for Fed rate cuts and was supportive for gold. However, the weak U.S. economic news also signaled reduced demand for industrial metals and was bearish for silver prices.
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.
