The dollar index (DXY00) Tuesday rose by +0.23%. Higher T-note yields on Tuesday supported moderate gains in the dollar. Also, a downward revision to US Q3 unit labor costs supported the dollar. In addition, Tuesday’s slump in the Canadian dollar (^USDCAD) to a 4-1/2 year low boosted the dollar.
US Q3 nonfarm productivity was +2.2%, unrevised from the original report. However, Q3 unit labor costs were revised downward to +0.8% from the previously reported +1.9%, weaker than expectations of +1.3%.
The markets are discounting the chances at 86% for a -25 bp rate cut at the December 17-18 FOMC meeting.
EUR/USD (^EURUSD) Tuesday fell by -0.27%. Tuesday’s stronger dollar weighed on the euro. Also, expectations for the ECB to cut interest rates by 25 bp at Thursday’s policy meeting are undercutting the euro.
Swaps are discounting the chances at 100% for a -25 bp rate cut by the ECB for Thursday’s meeting and at 6% for a -50 bp rate cut at the same meeting.
USD/JPY (^USDJPY) Tuesday rose by +0.46%. The yen on Tuesday extended Monday’s losses and fell to a 1-1/2 week low against the dollar. The yen was under pressure Tuesday for a second session on negative carryover from Monday when Japanese Prime Minister Ishiba said Japan had not escaped deflation yet, which dampened speculation that the BOJ would hike interest rates at the December 19 policy meeting. Also, higher T-note yields on Tuesday weighed on the yen.
February gold (GCG25) Tuesday closed up +32.60 (+1.21%), and March silver (SIH25) closed up +0.136 (+0.42%). Precious metals on Tuesday settled moderately higher, with gold posting a 2-week high. Heightened geopolitical risks in the Middle East are boosting safe-haven demand for precious metals amid the collapse of the Syrian government. Gold also has carryover support from an increase in demand from China after the People’s Bank of China said it bought 160,000 ounces of gold last month, its first purchase since April. In addition, the escalation of hostilities in the Ukraine-Russia conflict supports safe-haven demand for precious metals.
Tuesday’s stronger dollar and higher T-note yields were negative for precious metals. Also, silver prices were undercut by weaker-than-expected Chinese trade news, which is a negative factor for global growth prospects and industrial metals demand.
China Nov exports rose +6.7% y/y, weaker than expectations of +8.7% y/y. Also, Nov imports unexpectedly fell -3.9% y/y, weaker than expectations of +0.9% y/y and the largest decline in 9 months.
