The dollar index (DXY00) on Thursday fell slightly by -0.03%. The dollar Thursday gave up an early advance and posted modest losses after T-note yields gave up early gains and turned lower on dovish comments from Richmond Fed President Barkin. The dollar initially moved higher after U.S. Dec CPI rose more than expected and weekly jobless claims fell to a 2-1/2 month low, dampening expectations of Fed interest rate cuts.
U.S. weekly initial unemployment claims unexpectedly fell -1,000 to a 2-1/2 month low of 202,000, showing a stronger labor market than expectations of an increase to 210,000.
U.S. Dec CPI climbed to +3.4% y/y from +3.1% y/y in Nov, stronger than expectations of +3.2% y/y. Dec core CPI eased to +3.9% y/y from +4.0% y/y in Nov, the smallest increase in 2-1/2 years but above expectations of +3.8% y/y.
Fed comments Thursday were mixed for the dollar. On the bearish side, Richmond Fed President Barkin said he's open to lowering interest rates once it is clear inflation is on a path back toward the Fed's 2% target. Conversely, Cleveland Fed President Mester said today's U.S. December CPI report shows the Fed's job isn't done yet and that March is probably "too early" for the Fed to begin cutting interest rates.
The markets are discounting the chances for a -25 bp rate cut at 5% for the next FOMC meeting on Jan 30-31 and a 73% chance for that -25 bp rate cut for the following meeting on March 19-20.
EUR/USD (^EURUSD) on Thursday fell by -0.07%. On Wednesday, the euro posted modest losses on weak Eurozone economic news and dovish ECB comments. Italian Nov industrial production fell more than expected, and ECB President Lagarde and Governing Council member Vujcic said they favored lowering interest rates once inflation is on a path toward the ECB’s target.
Italy Nov industrial production fell -1.5% m/m, weaker than expectations of -0.2% m/m and the biggest decline in 7 months.
ECB President Lagarde said the ECB is likely at peak rates and can start cutting rates once data confirm inflation is on a path to the ECB's target.
ECB Governing Council member Vujcic said Eurozone December inflation was within expectations, and he favors quarter-point cuts in interest rate moves once the ECB begins cutting interest rates.
Swaps are pricing in the chances for a -25 bp rate cut by the ECB at 4% for its next meeting on January 25 and 34% for the following meeting on March 7.
USD/JPY (^USDJPY) on Thursday fell by -0.24%. The yen recovered from a 1-month low against the dollar and moved higher after a reversal in T-note yields to lower on the day sparked short covering in the yen. The yen initially dropped to a 1-month against the dollar when T-note yields rose after a stronger-than-expected U.S. Dec CPI report pushed back expectations for Fed interest rate cuts. Also, Thursday’s Japanese economic news was bearish for the yen after Japan's Nov leading index CI fell more than expected to a 3-year low.
The Japan Nov leading index CI fell -1.2 to a 3-year low of 107.7, weaker than expectations of 107.9.
February gold (GCG4) Thursday closed -8.60 (-0.42%), and Mar silver (SIH24) closed -0.361 (-1.57%). Precious metals on Thursday gave up early gains, fell to 1-month lows, and closed moderately lower. Metals retreated after the stronger-than-expected U.S. CPI report pushed back expectations for Fed rate cuts. Precious metals extended their losses Thursday on hawkish comments from Cleveland Fed President Mester, who said March is probably "too early" for the Fed to begin cutting interest rates. Another negative factor for gold is the continued liquidation of long gold positions by funds after long gold holdings in ETFs fell to a nearly 4-year low Wednesday.
Precious metals Thursday initially moved higher on increased safe-haven demand from heightened geopolitical risks in the Middle East after Iran seized an oil tanker off the coast of Oman. Gold also has support as an inflation hedge after the U.S. Dec CPI rose more than expected, and after the 10-year breakeven inflation rate today climbed to a 4-week high.
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.
