The dollar index (DXY00) today is up by +0.06%. The dollar today recovered from early losses and is slightly higher on weakness in the euro and yen. The dollar today initially posted modest losses due to a decline in T-note yields. Also, strength in stocks today has curbed liquidity demand for the dollar. Today’s US economic news was mixed for the dollar.
The US Dec Empire manufacturing survey of general business conditions fell -31.0 to 0.2, weaker than expectations of 10.0.
The US Dec S&P manufacturing PMI fell -1.4 to 48.3, weaker than expectations of 49.5. However, the Dec S&P services PMI rose +2.4 to 58.5, stronger than expectations of 55.8.
The markets are discounting the chances at 99% for a -25 bp rate cut at the December 17-18 FOMC meeting.
EUR/USD (^EURUSD) today is down by -0.13%. The euro is under pressure today after Moody’s Ratings cut France’s credit rating. Also, dovish comments from ECB President Lagarde weighed on the euro when she said the ECB will cut interest rates further with inflation coming closer to the bank’s 2% target. Today’s Eurozone economic news was mixed for the euro as the Eurozone Dec S&P manufacturing PMI was unchanged, and the Dec S&P composite PMI unexpectedly increased.
The Eurozone Dec S&P manufacturing PMI was unchanged at 45.2, weaker than expectations of 45.3. However, the Dec S&P composite PMI unexpectedly rose +1.2 to 49.5, stronger than expectations of a decline to 48.2.
Eurozone Q3 labor costs eased to +4.6% from +5.2% in Q2.
ECB President Lagarde said, "If the incoming data continue to confirm our baseline, the direction of travel is clear, and we expect to lower interest rates further."
Moody’s Ratings cut France’s credit rating to Aa3 from Aa2, saying the decision “reflects our views that France’s public finances will be substantially weakened over the coming years.”
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 14% chance for a -50 bp rate cut.
USD/JPY (^USDJPY) today is up by +0.49%. The yen today slid to a 2-1/2 week low against the dollar and has fallen in the last six sessions. The yen has had carryover pressure from last 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 this week. Losses in the yen are limited due to lower T-note yields today.
Japan Oct core machine orders rose +2.1% m/m, stronger than expectations of +1.1% m/m
The Japan Dec Jibun Bank manufacturing PMI rose +0.5 to 49.5. Also, the Dec Jibun Bank services PMI rose +0.9 to 51.4.
The Japan Oct tertiary industry index rose +0.3% m/m, stronger than expectations of -0.1% m/m.
February gold (GCG25) today is down -3.90 (-0.15%), and March silver (SIH25) is down -0.013 (-0.04%). Precious metals today gave up an early advance and are slightly lower. A rebound in the dollar knocked metals prices lower after the dollar recovered from early losses and turned higher. Silver prices were also under pressure after US and Eurozone Dec S&P manufacturing PMI’s were weaker than expected, a sign of weakness in industrial metals demand. Also, China Nov new home prices fell -0.2% m/m, the eighteenth consecutive month new home prices have fallen, a negative factor for industrial metals demand.
Precious metals today initially posted modest gains on declining global bond yields. Gold also has support on increased demand as a store of value on dovish comments from ECB President Lagarde who said the ECB will keep cutting interest rates as inflation subsides. In addition, expectations for the Fed to cut interest rates by -25 bp after Wednesday’s FOMC meeting are bullish for precious metals. Finally, precious metals have safe-haven support after the recent collapse of the Syrian government and the escalation of hostilities in the Ukraine-Russia conflict.
