The dollar index (DXY00) Monday rose by +0.09%. The dollar recovered from overnight losses Monday and climbed to a 1-week high as the slump in equity prices boosted liquidity demand for the dollar. Gains in the dollar were limited on Monday due to lower T-note yields. Also, Monday’s decline in the Dec MNI Chicago PMI to a 7-month low was bearish for the dollar.
US Nov pending home sales rose +2.2% m/m, stronger than expectations of +0.8% m/m.
The US Dec MNI Chicago PMI unexpectedly fell -3.3 to a 7-month low of 36.9, weaker than expectations of an increase to 43.0.
The US Dec Dallas Fed manufacturing outlook survey unexpectedly rose +5.1 to a 2-3/4 year high of 3.4, stronger than expectations of a decline to -3.0.
The markets are discounting the chances at 11% for a -25 bp rate cut at the January 28-29 FOMC meeting.
EUR/USD (^EURUSD) Monday fell by -0.21%. The euro on Monday fell from a 1-1/2 week high and slid to a 1-week low after a rebound in the dollar from overnight losses to a 1-week high sparked long liquidation in the euro. The euro initially moved higher after Spain’s Dec CPI rose more than expected, which was a hawkish factor for ECB policy. Also, hawkish comments from ECB Governing Council member Holzmann boosted the euro when he said the ECB should consider waiting longer before its next rate cut if inflation remains sticky.
Spain’s Dec CPI (EU harmonized) rose +2.8% y/y, stronger than expectations of +2.6% y/y and the largest increase in 5 months. Also, Dec core CPI rose +2.6% y/y, stronger than expectations of +2.4% y/y.
ECB Governing Council member Holzmann said, “It could be the case that we take more time before lowering interest rates again” if inflation risks from energy prices or a stronger depreciation of the euro materialize.
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 12% for a -50 bp rate cut at that meeting.
USD/JPY (^USDJPY) Monday fell by -0.56%. The yen posted moderate gains against the dollar Monday after the Japan Dec Jibun Bank manufacturing PMI was revised upward. The yen added to its gains Monday after T-note yields tumbled.
The yen also has carryover support from last Friday on speculation that Japanese authorities are close to intervening in the forex market to support the yen after Japanese Finance Minister Kato said the government would take “appropriate” steps against excessive foreign exchange market movements. The yen tumbled to a 5-1/2 month low against the dollar last Thursday.
The Japan Dec Jibun Bank manufacturing PMI was revised upward by +0.1 to 49.6 from the previously reported 49.5.
February gold (GCG25) Monday closed down -13.80 (-0.52%), and March silver (SIH25) closed down -0.556 (-1.86%). Precious metals on Monday settled moderately lower, with gold and silver falling to 1-week lows. Metals prices were under pressure Monday from a stronger dollar. Gold prices were also weighed down Monday by hawkish comments from ECB Governing Council member Holzmann, who said the ECB should consider waiting longer before its next rate cut if inflation risks from energy prices or euro depreciation materialize. Losses in silver prices accelerated Monday after the US Dec MNI Chicago PMI unexpectedly contracted by the most in 7 months, a negative factor for industrial metals demand.
Lower global bond yields on Monday limited losses in precious metals. Also, Monday’s stock slump has boosted safe-haven demand for precious metals. Precious metals still 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. Silver prices have support on hopes of increased industrial metals demand in China on reports that China will launch additional stimulus measures in 2025.
