The dollar index (DXY00) Thursday fell by -0.09%. The dollar on Thursday gave up an early advance and turned lower, based on dovish comments from Fed Governor Waller, who said if inflation moves lower, there may be more Fed rate cuts this year than the market anticipates.
Thursday's US economic news was mixed for the dollar. On the bullish side, the Jan Philadelphia Fed business outlook survey rose more than expected to a 3-3/4 year high, and the Jan NAHB housing market index unexpectedly rose to a 9-month high. Conversely, Dec retail sales rose less than expected, and weekly jobless claims rose more than expected.
US weekly initial unemployment claims rose +14,000 to 217,000, showing a weaker labor market than expectations of 210,000.
US Dec retail sales rose +0.4% m/m, weaker than expectations of +0.6% m/m.
The US Jan Philadelphia Fed business outlook survey jumped 55.2 to a 3-3/4 year high of 44.3, stronger than expectations of -5.0.
The US Dec import price index ex-petroleum unexpectedly rose +0.2% m/m versus expectations of a -0.1% m/m decline.
The US Jan NAHB housing market index unexpectedly rose +1 to a 9-month high of 47, stronger than expectations of a decline to 45.
Fed Governor Waller said if inflation moves lower, there may be more rate cuts than the market anticipates, with 3 or 4 rate cuts possible this year if the data cooperates.
The markets are discounting the chances at 3% for a -25 bp rate cut at the January 28-29 FOMC meeting.
EUR/USD (^EURUSD) Thursday rose by +0.11%. The euro recovered from early losses Thursday and turned higher after the dollar gave up its gains and moved lower on dovish comments from Fed Governor Waller.
The euro on Thursday initially moved lower after the minutes of the December 11-12 ECB meeting, which stated that some policymakers argued for a 50 bp rate cut. Also, dovish comments from ECB Governing Council member Centeno were bearish for the euro after he said inflation is under control and interest rates are headed lower.
The minutes of the ECB's December 11-12 meeting were slightly dovish as they noted that while the -25 bp rate cut decided at the meeting was widely supported, some members argued for a more aggressive 50 bps reduction.
ECB Governing Council member Centeno said, "If we look at the next months, quarters, year and a half, we see inflation clearly converging to values probably even slightly below 2%, and interest rates in the Eurozone will continue on a trajectory ideally to values also close to 2%."
Swaps are discounting the chances at 98% for a -25 bp rate cut by the ECB at its next meeting on January 30.
USD/JPY (^USDJPY) Thursday fell by -0.79%. The yen rose to a 4-week high against the dollar Thursday after a Bloomberg report said the BOJ sees a good chance of raising interest rates at next week's policy meeting. Also, Thursday's news showing Japanese producer prices rising at the fastest pace in 1-1/2 years is hawkish for BOJ policy and supportive of the yen. Gains in the yen accelerated Thursday after T-note yields turned lower.
Japan's Dec PPI rose +3.8% y/y, the fastest pace in 1-1/2 years and right on expectations.
A report from Bloomberg said BOJ officials acknowledge there's a likelihood the BOJ will raise interest rates at their meeting next week unless Trump's presidency ruffles markets or changes expectations about the global economy.
February gold (GCG25) Thursday closed up +33.10 (+1.22%), and March silver (SIH25) closed up +0.194 (+0.62%). Precious metals on Thursday added to Wednesday's sharp gains as gold and silver posted 1-month highs. Precious metals are climbing on carryover support from Wednesday after the UK and US December core consumer prices rose less than expected, which may push the BOE and Fed to cut interest rates. Gold also found support Thursday as a store of value based on the dovish minutes of the December 11-12 ECB meeting, where some policymakers argued for a 50 bp rate cut instead of a 25 bp cut. Precious metals added to their gains Thursday based on dovish comments from Fed Governor Waller, who said if inflation moves lower, there may be more Fed rate cuts this year than the market anticipates. Precious metals have continued safe-haven support from geopolitical risks after the recent collapse of the Syrian government, Middle East tensions, and the escalation of hostilities in the Ukraine-Russia conflict.
