The dollar index (DXY00) on Friday rose by +0.04%. Higher T-note yields on Friday supported modest gains in the dollar. Strength in the yuan limited gains in the dollar as the yuan climbed to a 6-3/4 month high against the dollar Friday. Also, expectations for the Fed to begin cutting interest rates in 2024 are bearish for the dollar.
U.S. economic news Friday was dovish for Fed policy and bearish for the dollar. The Dec MNI Chicago PMI fell -8.9 to 46.9, weaker than expectations of 50.0.
Hawkish comments Friday from former Treasury Secretary Summers were supportive for the dollar when he said "I think there's still a risk that the market is probably underestimating that we're not going to make as much progress on inflation as people hope, and that there's not going to be quite as much room for Fed easing as people hope."
The markets are discounting the chances for a -25 bp rate cut at 16% for the next FOMC meeting on Jan 30-31 and have fully discounted (100%) the chance for that -25 bp rate cut for the following meeting on March 19-20.
EUR/USD (^EURUSD) on Friday fell by -0.12%. The euro on Friday was under pressure from a stronger dollar. The euro also moved lower on signs of easing European price pressures that are dovish for ECB policy after Spain’s Dec core CPI rose at the slowest pace in 1-3/4 years. The jump in the 10-year German bund yield on Friday to a 1-1/2 week high strengthened the euros’ interest rate differentials and limited losses in EUR/USD.
Spain Dec CPI (EU harmonized) rose +3.3% y/y, unchanged from Nov. However, Dec core CPI eased to +3.8% y/y from +4.5% y/y in Nov, the slowest pace of increase in 1-3/4 years.
Swaps are pricing in the chances for a -25 bp rate cut by the ECB at 7% for its next meeting on Jan 25 and at 65% for the following meeting on March 7.
USD/JPY (^USDJPY) on Friday fell by -0.30%. The yen on Friday posted moderate gains but remained below Thursday’s 5-month high against the dollar. Year-end short covering boosted the yen, along with expectations that the BOJ will end its negative rate policy next year. Higher T-note yields on Friday limited gains in the yen.
February gold (GCG4) Friday closed -11.70 (-0.56%), and Mar silver (SIH24) closed -0.286 (-1.17%). Gold and silver on Friday settled moderately lower, with silver falling to a 2-week low. Precious metals were under pressure on Friday from a stronger dollar. Also, higher global bond yields on Friday were bearish for precious metals. Silver prices also retreated Friday on concerns about industrial metals demand after the U.S. Dec MNI Chicago PMI contracted more than expected.
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.
