The dollar index (DXY00) on Wednesday rose by +0.34%. The dollar Wednesday rose moderately and found support on better-than-expected U.S. economic news on Oct retail sales and the Nov Empire manufacturing survey. Also, higher T-note yields on Wednesday benefited the dollar. Wednesday’s rally in stocks curbed liquidity demand for the dollar and limited the dollar’s gains.
Wednesday’s better-than-expected U.S. economic news was supportive of the dollar. Oct retail sales fell -0.1% m/m, a smaller decline than expectations of -0.3% m/m. Also, Oct retail sales ex-autos unexpectedly rose +0.1% m/m, stronger than expectations of a -0.2% m/m decline. In addition, the Nov Empire manufacturing survey general business conditions rose +13.7 to a 7-month high of 9.1, stronger than expectations of -3.0.
An easing of price pressures is dovish for Fed policy and bearish for the dollar. U.S. Oct PPI final demand eased to +1.3% y/y from +2.2% y/y in Sep, weaker than expectations of +1.9% y/y. Also, Oct PPI ex-food and energy eased to +2.4% y/y, from +2.7% y/y in Sep, weaker than expectations of no change at +2.7% y/y and the smallest year-on-year increase in 2-3/4 years.
Comments Wednesday from San Francisco Fed President Daly were slightly hawkish and bullish for the dollar when she warned that a "stop-start" Fed policy would "ultimately tear at credibility," and the Fed should be "thoughtful" and take its time and "not rush to judgment and not make declarations" on whether the economy is "really on a disinflationary process."
The markets are discounting a 0% chance for a +25 bp rate hike at the next FOMC meeting on Dec 12-13 FOMC and a 0% chance for that +25 bp rate hike at the following FOMC meeting on Jan 30-31, 2024. The markets are then discounting a +23% chance for a -25 bp rate cut at the March 19-20, 2024, FOMC meeting and a 70% chance for that same -25 bp rate cut at the Apr 30-May 1, 2024 FOMC meeting.
EUR/USD (^EURUSD) on Wednesday fell by -0.31%. The euro posted moderate losses Wednesday on a stronger dollar and weak Eurozone economic news after Eurozone Sep industrial production fell more than expected. The euro was also under pressure after the European Commission today cut its Eurozone 2023 GDP forecast.
Eurozone Sep industrial production fell -1.1% m/m, weaker than expectations of -1.0% m/m.
The European Commission cut its Eurozone 2023 GDP forecast to 0.6% from a September forecast of 0.8%.
USD/JPY (^USDJPY) on Wednesday rose by +0.67%. The yen on Wednesday fell back from a 1-week high against the dollar and fell moderately. A steeper-than-expected pace of contraction in Japan’s Q3 GDP report undercut the yen. Also, higher T-note yields on Wednesday were bearish for the yen. In addition, the fall in the 10-year JGB bond yield to a 4-week low Wednesday at 0.774% weakened the yen’s interest rate differentials.
Japan's Q3 GDP fell -2.1% (q/q annualized), weaker than expectations of -0.4%. The Q3 deflator rose a record +5.1% y/y, stronger than expectations of +4.8% y/y.
Japan Sep industrial production was revised upward by +0.3 to 0.5% m/m from the initially reported +0.2% m/m.
December gold (GCZ3) Wednesday closed down -2.20 (-0.11%), and Dec silver (SIZ23) closed up +0.406 (+1.76%). Precious metals prices Wednesday settled mixed, with silver climbing to a 2-week high. A stronger dollar Wednesday and higher global bond yields were bearish for precious metals. Also, Wednesday’s rally in stocks reduced safe-haven demand for precious metals and was negative for metals prices. However, silver prices found support after China’s Oct industrial production rose more than expected, a positive factor for global growth and industrial metals demand. Also, Wednesday’s weaker-than-expected U.S. Oct PPI report shows an easing of price pressures that may prompt the Fed to stop raising interest rates, a supportive factor for precious metals.
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.
