The dollar index (DXY00) Tuesday rose by +0.18%. The dollar moved higher Tuesday after President-elect Trump said on his first day in office he would impose an extra 10% tariff on goods from China and a 25% tariff on all products from Canada and Mexico. The dollar also found support Tuesday on hawkish comments from San Francisco Fed President Daly, who said inflation is still above target and the Fed still needs to work on bringing it down. In addition, the Nov 6-7 FOMC meeting minutes showed policymakers favored a gradual approach to interest rate cuts, a supportive factor for the dollar.
Gains in the dollar were limited Tuesday after stocks rallied, reducing liquidity demand for the dollar. US economic news was mixed for the dollar, with Nov US consumer confidence climbing to a 16-month high and Oct new home sales falling to a nearly 2-year low.
The US Sep S&P CoreLogic composite-20 home price index eased to 4.57% y/y from +5.21% y/y in Aug, weaker than expectations of +4.70% and the smallest annual increase in a year.
US Oct new home sales fell -17.2% m/m to a 2-year low of 610,000, weaker than expectations of 725,000.
The Conference Board US Nov consumer confidence index rose +2.1 to a 16-month high of 111.7, close to expectations of 111.8.
The US Nov Richmond Fed manufacturing outlook survey was unchanged at -14, weaker than expectations of an increase to -11.
The minutes of the Nov 6-7 FOMC meeting showed policymakers favored a gradual approach to interest rate cuts as "participants anticipated that if the data came in about as expected, with inflation continuing to move down sustainably to 2% and the economy remaining near maximum employment, it would likely be appropriate to move gradually toward a more neutral stance of policy over time."
San Francisco Fed President Daly said, "Inflation is still printing above our 2% target, so we need to continue to work to bring that down."
The markets are discounting the chances at 59% for a -25 bp rate cut at the December 17-18 FOMC meeting.
EUR/USD (^EURUSD) Tuesday fell by -0.20%. The euro Tuesday gave up early gains and turned lower after a rebound in the dollar sparked long liquidation in the euro. Also weighing on the euro were dovish comments from ECB Vice President Guindos that knocked the 10-year German bund yield down to a 5-week low, weakening the euro’s interest rate differentials. The euro on Tuesday initially moved higher after US President-elect Trump vowed additional tariffs on the US’s main trading partners without mentioning the Eurozone.
ECB Vice President Guindos said, "If the ECB's projections are confirmed, we will continue making our monetary policy stance less restrictive."
Swaps are discounting the chances at 100% for a -25 bp rate cut by the ECB for the December 12 meeting and at 29% for a -50 bp rate cut at the same meeting.
USD/JPY (^USDJPY) Tuesday fell by -0.73%. The yen on Tuesday added to Monday’s gain and climbed to a 2-week high against the dollar. The yen pushed higher Tuesday after Japan’s November producer service prices rose more than expected, a hawkish factor for BOJ policy. The yen also has carryover support from last Friday when Japan’s National Oct core CPI rose at the fastest pace in 6 months, which may push the BOJ to raise interest rates at next month’s policy meeting.
The Japan Nov PPI services prices rose +2.9% y/y, stronger than expectations of +2.5% y/y.
December gold (GCZ24) Tuesday closed up +2.80 (+0.11%), and December silver (SIZ24) closed up +0.166 (+0.55%). Precious metals recovered from 1-week lows on Tuesday and posted modest gains. Short covering emerged in precious metals Tuesday after President-elect Trump vowed to impose an additional 10% tariff on goods from China and a 25% tariff on goods from Canada and Mexico on his first day in office, which could stoke inflation and is bullish for precious metals. Dovish ECB comments Tuesday also boosted demand for gold as a store of value after ECB Vice President Guindos said he expects the ECB to keep lowering interest rates. In addition, the escalation of the Ukraine-Russia conflict supports safe-haven demand for precious metals.
Precious metal Tuesday initially opened lower with gold and silver, posting 1-week lows amid a potential easing of tensions in the Middle East after the Israeli government said it expects to pass a cease-fire deal Tuesday with Hezbollah. Also, Tuesday's stronger dollar and higher T-note yields were bearish for precious metals. In addition, hawkish comments Tuesday from San Francisco Fed President Daly weighed on precious metals when she said inflation is still above target and the Fed still needs to work on bringing it down. Finally, strength in stocks Tuesday curbed safe-haven demand for precious metals.
