The dollar index (DXY00) Friday rose by +0.03% and posted a 2-1/2 week high. The dollar was supported by Friday’s news of an unexpected increase in the US Nov import price index ex-petroleum, a hawkish factor for Fed policy. The dollar also found support from stronger interest rate differentials with Friday’s rise in the 10-year T-note yield to a 2-1/2 week high.
Strength in stocks Friday reduced liquidity demand for the dollar. The dollar was also undercut by expectations that the Fed will cut interest rates by -25 bp at next week’s FOMC meeting.
The US Nov import price index ex-petroleum unexpectedly rose +0.2% m/m, stronger than expectations of no change.
The markets are discounting the chances at 97% for a -25 bp rate cut at the December 17-18 FOMC meeting.
EUR/USD (^EURUSD) Friday rose by +0.25%. The euro on Friday recovered from a 2-1/2 week low and posted moderate gains after an increase in the 10-year German bund yield to a 2-1/2 week high, which sparked short covering in the euro. The euro on Friday initially moved lower, based on dovish comments from ECB Governing Council member Villeroy de Galhau, who said, "There will be more rate cuts next year." Also, the action by the Bundesbank to cut its 2024 German GDP estimate and inflation forecasts and weaker-than-expected German Oct exports were dovish factors for ECB policy and negative for the yen.
Eurozone Oct industrial production was unchanged m/m, right on expectations, and Sep was revised upward to -1.5% m/m from the previously reported -2.0% m/m.
German trade news was weaker than expected as German Oct exports fell -2.8% m/m, weaker than expectations of -2.6% m/m and the biggest decline in 10 months.
The Bundesbank cut its German 2024 GDP estimate to -0.2% from a prior estimate of +0.3% and cut its 2024 inflation forecast to +2.5% from a prior estimate of +2.8%.
ECB Governing Council member Villeroy de Galhau said, "There will be more rate cuts next year," and I'm "rather comfortable with financial markets' forecasts" on more than 100 basis points of easing.
Swaps are discounting the chances at 100% for a -25 bp rate cut by the ECB at its next meeting on January 30 and a 53% chance for a -50 bp rate cut.
USD/JPY (^USDJPY) Friday rose by +0.71%. The yen on Friday dropped to a 2-1/2 week low against the dollar and has fallen each day this week. The yen has carryover pressure from Thursday when a Reuters report said the BOJ sees no need to rush into further rate hikes and is leaning toward keeping interest rates steady when it meets next week. Also, higher T-note yields Friday weighed on the yen. Friday’s Japanese economic news was mixed for the yen as the Q4 Tankan large manufacturing business conditions index unexpectedly increased, but Oct industrial production was revised downward.
The Japan Q4 Tankan large manufacturing business conditions index rose +1 from Q3 to 14, better than expectations of no change at 13.
Japan Oct industrial production was revised downward by -0.2 to +2.8% m/m from the previously reported +3.0% m/m.
February gold (GCG25) Friday closed down -33.60 (-1.24%), and March silver (SIH25) closed down -0.591 (-1.87%). Precious metals Friday added to Thursday’s sharp losses, with silver prices falling to a 1-1/2 week low. Friday’s rally in the dollar index to a 2-1/2 week high was bearish for metals prices. Also, higher global bond yields Friday weighed on precious metals. In addition, Friday’s unexpected increase in the US Nov import price index ex-petroleum signals sticky price pressures that are hawkish for Fed policy. Silver prices also came under pressure Friday after the Bundesbank cut its German 2024 GDP estimate to -0.2% from a prior estimate of +0.3% and after German Oct exports fell -2.8% m/m, the biggest decline in 10 months and a bearish factor for industrial metals demand.
Dovish comments Friday from ECB Governing Council member Villeroy de Galhau boosted demand for gold as a store of value when he said, "There will be more rate cuts next year." Precious metals prices also have safe-haven support after the recent collapse of the Syrian government and the escalation of hostilities in the Ukraine-Russia conflict.
