The dollar index (DXY00) Thursday recovered from early losses and ended the day mildly higher by +0.27%. The dollar found support Thursday on hawkish comments from Fed Chair Powell, who said policymakers were “not confident” they had raised interest rates enough to bring inflation back down to the Fed’s 2% target. The dollar Thursday initially moved lower on strength in the euro, and after weekly U.S. continuing unemployment claims rose more than expected to a 6-1/2 month high, a sign of labor market weakness that was dovish for Fed policy.
Fed Chair Powell said policymakers are "not confident" they have achieved the stance to return inflation to the Fed's 2% target, and they "won't hesitate" to tighten more if appropriate.
Comments from some Fed members suggest they favor maintaining interest rates at current levels when Atlanta Fed President Bostic agreed with Richmond Fed President Barkin's assessment that "In aggregate, we are still not seeing the full effects of monetary policy." Atlanta Fed President Bostic added that the Fed will stay restrictive until it is sure inflation falls to 2%.
U.S. weekly initial unemployment claims unexpectedly fell -3,000 to 217,000, close to expectations of 218,000. However, weekly continuing claims rose +22,000 to a 6-1/2 month high of 1.834 million, showing a weaker labor market than expectations of 1.820 million.
The markets are discounting a 12% chance for a +25 bp rate hike at the next FOMC meeting on Dec 12-13 FOMC and a 24% chance for that +25 bp rate hike at the following FOMC meeting on Jan 30-31, 2024. The markets are then expecting the FOMC to begin cutting rates by mid-2024 in response to an expected slowdown in the U.S. economy.
EUR/USD (^EURUSD) on Thursday fell by -0.34%. The euro on Thursday gave up an early advance and turned lower after the dollar strengthened on hawkish comments from Fed Chair Powell. Another negative for the euro was the dovish comment from ECB Governing Council member Villeroy de Galhau, who said the ECB was done raising interest rates. EUR/USD Thursday initially moved higher on hawkish comments from ECB Vice President Guindos, who said talks of interest rate cuts by the ECB in the coming months are "clearly premature."
ECB Governing Council member Villeroy de Galhau said the inflation rate in the Eurozone had fallen threefold in a year and, despite some volatility, the trend is "clearly downward," so the ECB is done with interest rate increases unless it has to deal with additional shocks.
ECB Vice President Guindos said talks of interest rate cuts by the ECB in the coming months are "clearly premature," citing risks to the inflation outlook.
USD/JPY (^USDJPY) on Thursday rose by +0.21%. The yen on Thursday dropped to a 1-week low against the dollar. The yen Thursday was under pressure from lower Japanese government bond yields after the 10-year JGB bond yield fell to a 3-week low of 0.833% on dovish comments from BOJ Governor Ueda, who said the BOJ won't rush to normalize monetary policy. The yen extended its losses after T-note yields jumped on hawkish comments from Fed Chair Powell.
The Japan Oct eco watchers outlook survey fell -1.1 to a 10-month low of 48.4, weaker than expectations of no change at 49.5.
BOJ Governor Ueda said the BOJ won't rush to normalize monetary policy, saying that lower-than-desired inflation would be harder to deal with given the current situation in Japan.
December gold (GCZ3) Thursday closed up +12.00 (+0.610%), and Dec silver (SIZ23) closed up +0.177 (+0.78%). Precious metals prices Thursday posted moderate gains. Dollar weakness early Thursday was supportive of metals prices. Precious metals also rose Thursday after weekly U.S. weekly continuing jobless claims rose more than expected to a 6-1/2 month, which is dovish for Fed policy. Gains in precious metals were limited by higher global bond yields and hawkish comments from ECB Vice President Guindos, who said talks of interest rate cuts by the ECB in the coming months are "clearly premature."
In after-hours trading Thursday afternoon, gold prices tumbled more than -$7.00 an ounce when the dollar strengthened after Fed Chair Powell said policymakers are "not confident" they have achieved the stance to return inflation to the Fed's 2% target.
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.
