The dollar index (DXY00) Thursday fell by -0.14%. The dollar gave up early gains Thursday and turned lower after the S&P 500 rallied to a new record high, reducing liquidity demand for the dollar. The dollar was also under pressure after US weekly jobless claims rose more than expected, a dovish factor for Fed policy. The dollar on Thursday initially moved higher as T-note yields rose.
US weekly initial unemployment claims rose +6,000 to a 6-week high of 223,000, showing a weaker labor market than expectations of 220,000. Also, weekly continuing claims rose +46,000 to a 3-year high of 1.899 million, showing a weaker labor market than expectations of 1.866 million.
The US Jan Kansas City Fed manufacturing sentiment survey was unchanged at -5, weaker than expectations of an increase to 0.
The markets are discounting the chances at 1% for a -25 bp rate cut at the January 28-29 FOMC meeting.
EUR/USD (^EURUSD) Thursday rose by +0.18%. The euro recovered from early losses Thursday and turned higher after dollar weakness sparked short covering in the euro. The euro on Thursday initially moved lower based on dovish comments from ECB Governing Council member Escriva, who said the ECB still has restrictive policy and needs to move toward a more neutral stance. The upside in the euro appears limited in the near term, based on expectations for the ECB to cut interest rates by -25 bp at next Thursday’s policy meeting.
ECB Governing Council member Escriva said, "The ECB has a monetary policy that is somewhat restrictive, and we need to move to a more neutral stance over the next semester or so."
Swaps are discounting the chances at 97% for a -25 bp rate cut by the ECB at its next meeting on January 30.
USD/JPY (^USDJPY) Thursday fell by -0.46%. The yen recovered from a 1-week low Thursday and posted moderate gains on a report from the Nikkei that said the BOJ will raise interest rates at Friday’s policy meeting. The yen Thursday initially moved lower after Japan’s Nikkei Stock Index rallied to a 2-week high, which curbed safe-haven demand for the yen. Also, higher T-note yields Thursday were bearish for the yen.
Japanese trade news was mixed for the yen. Dec exports rose +2.8% y/y, stronger than expectations of +2.4% y/y. However, Dec imports rose +1.8% y/y, weaker than expectations of +3.2% y/y.
The Nikkei reported today that the BOJ is set to vote for a rate hike during its 2-day meeting that ends Friday as inflation hovers above its 2% target and wage hikes by domestic companies spread, allowing it to further normalize monetary policy.
February gold (GCG25) Thursday closed down -5.90 (-0.21%), and March silver (SIH25) closed down -0.578 (-1.84%). Precious metals Thursday retreated, with silver falling to a 1-week low. Higher global bond yields Thursday undercut precious metals prices. Also, Thursday’s rally in the S&P 50 to a new all-time high reduced safe-haven demand for precious metals. In addition, Thursday’s report from the Nikkei that said the BOJ will raise interest rates following Friday’s policy meeting sparked long liquidation in precious metals. Silver prices were also weighed down by negative carryover from Thursday’s slide in copper prices to a 2-week low.
Precious metals recovered from their worst levels Thursday as the dollar weakened. Also, dovish central bank comments on Thursday supported the demand for precious metals as a store of value after ECB Governing Council member Escriva said that ECB policy is still restrictive and that interest rates need to come down to a more neutral level.
