The dollar index (DXY00) Tuesday rose by +0.30%. The dollar on Tuesday recovered from early losses and posted moderate gains as T-note yields jumped on the stronger-than-expected US Nov JOLTS job openings and Dec ISM services reports, which were hawkish for Fed policy and dampened the chances of additional Fed rate cuts in the near term. Hawkish comments from Richmond Fed President Barkin also supported the dollar when he said if price pressures persist, the Fed will have to be tougher with interest rates. In addition, stock weakness Tuesday boosted liquidity demand for the dollar.
The dollar Tuesday initially moved lower on negative carryover from Monday when the Washington Post reported that President-elect Trump's aides are weighing a tariff program covering only critical imports. If implemented, such a plan would disrupt global trade less than expected and reduce the inflationary impact of the tariffs, a dovish factor for Fed policy. Also, the US trade deficit widened in November, a negative factor for Q4 GDP and a bearish factor for the dollar.
The US Nov trade deficit widened to -$78.2 billion from -$73.6 billion in Oct, a smaller deficit than expectations of -$78.3 billion.
US Nov JOLTS job openings unexpectedly rose +259,000 to a 6-month high of 8.098 million, stronger than expectations of a decline to 7.740 million.
The US Dec ISM services index rose +2.0 to 54.1, stronger than expectations of 53.5.
Richmond Fed President Barkin said the Fed remains "highly committed" to a 2% inflation target, and if price pressures persist, the Fed will have to be tougher with interest rates.
The markets are discounting the chances at 5% for a -25 bp rate cut at the January 28-29 FOMC meeting.
EUR/USD (^EURUSD) Tuesday fell by -0.38%. The euro gave up overnight gains and turned lower as the dollar strengthened Tuesday on better-than-expected US economic news. The euro initially moved higher Tuesday as Eurozone inflation news was slightly hawkish for ECB policy and supported the euro after Dec CPI rose as expected and the ECB's Nov 1-year and 3-year inflation expectations increased.
Eurozone Dec CPI rose +2.4% y/y, up from +2.2% y/y in Nov and right on expectations. Also, Dec core CPI rose +2.7% y/y, unchanged from Nov and right on expectations.
The ECB's Nov 1-year inflation expectations rate rose to 2.6% from 2.5% in Oct. The ECB's Nov 3-year inflation expectations rate rose to 2.4% from 2.1% in Oct.
Swaps are discounting the chances at 98% for a -25 bp rate cut by the ECB at its next meeting on January 30.
USD/JPY (^USDJPY) Tuesday rose by +0.09%. The yen on Tuesday gave up an early advance and fell to a 5-1/2 month low against the dollar. Higher T-note yields and dollar strength on Tuesday weighed on the yen. Also, Tuesday's +1.97% rally in the Nikkei Stock Index reduced safe-haven demand for the yen.
The yen initially moved higher Tuesday based on comments from Japanese Finance Minister Kato, who said he is "deeply concerned" about recent moves in the forex market and that "we will take appropriate action if there are excessive movements in the currency market." Japanese officials are worried about weakness in the yen and continue to threaten to intervene in support of the yen.
February gold (GCG25) Tuesday closed up +18.00 (+0.68%), and March silver (SIH25) closed up +0.103 (+0.34%). Precious metals posted moderate gains on Tuesday, with silver climbing to a 2-1/2 week high. Gold garnered support Tuesday from increased demand from China after the PBOC expanded its gold reserves for a second month, boosting its gold holdings to 73.29 troy million ounces in December from 72.96 million troy ounces in November. Silver has carryover support from Monday after the Washington Post reported that President-elect Trump's aides are weighing a plan for tariffs on only critical imports. If implemented, such a plan would disrupt global trade and economic growth less than expected, a supportive factor for industrial metals demand. Precious metals have continued safe-haven support from geopolitical risks after the recent collapse of the Syrian government and the escalation of hostilities in the Ukraine-Russia conflict.
Precious metals fell back from their best levels Tuesday after stronger-than-expected US economic news pushed the dollar higher and reduced the chances of additional Fed interest rate cuts. Also, higher global bond yields on Tuesday were bearish for precious metals.
