The dollar index (DXY00) Wednesday fell by -0.03%. The dollar Wednesday gave up an early advance and turned lower on weakness in US economic reports that showed the Nov ADP employment change rose less than expected and the Nov ISM services index fell more than expected.
The dollar today initially moved higher on weakness in the euro ahead of today’s no-confidence vote in France that could topple the government and throw the country into political turmoil. The dollar also found support from hawkish comments from St. Louis Fed President Musalem, who said the time is near for the Fed to slow or pause interest rate cuts. In addition, Fed Chair Powell's comments supported the dollar when he said the US economy is in "remarkably good shape." Finally, the Fed’s Beige Book was positive for the dollar as business contacts expressed optimism about demand prospects in the coming months.
The US Nov ADP employment change rose +146,000, slightly weaker than expectations of +150,000, and Oct was revised lower to +184,000 from the previously reported +233,000.
The US Nov ISM services index fell -3.9 to 52.1, weaker than expectations of 55.3.
US Oct factory orders rose +0.2% m/m, right on expectations.
The Fed Beige Book said, "Though growth in economic activity was generally small, expectations for growth rose moderately across most geographies and sectors. Business contacts expressed optimism that demand will rise in coming months and consumer spending was generally stable."
Fed Chair Powell said the US economy is in "remarkably good shape" right now, and we are now on a path to bring interest rates to a neutral level over time.
St. Louis Fed President Musalem said, "The time may be approaching to consider slowing the pace of interest rate reductions, or pausing, to carefully assess the current economic environment, incoming information, and evolving outlook."
The markets are discounting the chances at 76% for a -25 bp rate cut at the December 17-18 FOMC meeting.
EUR/USD (^EURUSD) Wednesday fell by -0.02%. The euro gave up an early advance and moved lower after France’s government was toppled and French Prime Minister Barnier was ousted by a no-confidence vote in the parliament. The euro was also pressured by dovish comments today from ECB Governing Council member Rehn, who said the ECB will continue to ease policy in the coming months.
The euro Wednesday initially posted modest gains after weaker-than-expected US economic news weighed on the dollar and sparked short covering in the euro. The euro also found support Wednesday from an upward revision to the Eurozone Nov S&P composite PMI.
The Eurozone Nov S&P composite PMI was revised upward by +0.2 to 48.3 from the previously reported 48.1.
ECB Governing Council member Rehn said inflation has slowed to the targeted 2%, and Eurozone economic growth is fragile. "These factors have added to the grounds for cutting the benchmark rate in December, and this direction in monetary policy is set to continue into the coming months."
Swaps are discounting the chances at 100% for a -25 bp rate cut by the ECB for the December 12 meeting and at 9% for a -50 bp rate cut at the same meeting.
USD/JPY (^USDJPY) Wednesday rose by +0.70%. Wednesday’s decline in Japanese government bond yields weakened the yen’s interest rate differentials and weighed on the yen after the 10-year JGB bond yield fell to a 3-week ow of 1.045%. The yen recovered from its worst levels Wednesday after weaker-than-expected US economic news knocked T-note yields lower, a bullish factor for the yen.
February gold (GCG25) Wednesday closed up +8.30 (+0.31%), and March silver (SIH25) closed up +0.423 (+1.34%). Precious metals posted moderate gains Wednesday and found support from a weaker dollar and on safe-haven demand from political turmoil in South Korea and France. Gold also saw support from increased demand as a store of value following Wednesday’s comments from ECB Governing Council member Rehn, who said the ECB will continue to ease monetary policy in the coming months. In addition, ramped-up hostilities in the Ukraine-Russia conflict support safe-haven demand for precious metals.
Wednesday’s rally in the S&P 500 to a new record high has curbed some safe-haven demand for precious metals. Also, hawkish comments Wednesday from St. Louis Fed President Musalem undercut precious metals when he said the time may be near to slow or pause Fed rate cuts. Upbeat comments from Fed Chair Powell also weighed on precious metals when he said the US economy is in good shape.
