The dollar index (DXY00) Tuesday rose by +0.29% and posted a 2-year high. The dollar saw support Tuesday from strong year-end demand. Also, weakness in the yuan, which fell to a 14-month low against the dollar, boosted the dollar after China’s Dec manufacturing PMI fell -0.2 to 50.1, weaker than expectations of 50.2. The dollar added to its gains after today’s news showed US home prices rose more than expected in October. The dollar moved to its high on Tuesday after T-note yields erased early losses and moved higher, which strengthened the dollar’s interest rate differentials.
The US Oct S&P CoreLogic composite-20 home price index rose +0.3% m/m and +4.2% y/y, stronger than expectations of +0.2% m/m and +4.1% y/y.
The markets are discounting the chances at 11% for a -25 bp rate cut at the January 28-29 FOMC meeting.
EUR/USD (^EURUSD) Tuesday fell by -0.46% and posted a 1-week low. Strength in the dollar Tuesday sparked long liquidation in the euro. Trading activity was thin on Tuesday, with some European markets closed for the New Year’s holiday.
Swaps are discounting the chances at 100% for a -25 bp rate cut by the ECB at its next meeting on January 30 and at 11% for a -50 bp rate cut at that meeting.
USD/JPY (^USDJPY) Tuesday rose by +0.33%. The yen Tuesday retreated from a 1-week high against the dollar and turned lower after T-note yields erased early losses and moved higher, which sparked long liquidation in the yen. Trading activity in the yen was thin on Tuesday, with markets in Japan closed for a bank holiday.
The yen has support from the threat of intervention in the forex market by the Japanese government to support the yen. Last Friday, Japanese Finance Minister Kato said the government would take “appropriate” steps against excessive foreign exchange market movements after the yen tumbled to a 5-1/2 month low against the dollar last Thursday.
February gold (GCG25) Tuesday closed up +22.90 (+0.87%), and March silver (SIH25) closed down -0.170 (-0.58%). Precious metals on Tuesday settled mixed, with silver falling to a 1-week low. 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. Tuesday’s fall in stocks also boosted some safe-haven demand for precious metals.
Higher T-note yields on Tuesday and a jump in the dollar index to a 2-year high undercut metal prices. Silver prices were also under pressure Tuesday after the China Dec manufacturing PMI fell -0.2 to 50.1, weaker than expectations of 50.2 and a negative factor for industrial metals demand.