The dollar index (DXY00) today is slightly higher by +0.06%, extending Monday's gain of +0.39% and recovering a bit farther after last Friday's -0.73% decline.
The dollar is seeing support from improved US interest rate differentials, with the 10-year T-note yield today rising +3 bp and adding to Monday's gain of +6 bp.
The dollar this week has shown a mild recovery after falling sharply by -0.88% last Friday on the weaker-than-expected US PCE price index report, which was dovish for FOMC policy. The dollar this week has seen support from higher T-note yields and the fact that Congress last Friday passed a stop-gap funding bill and averted a US government shutdown, which would have been negative for the US economy.
The Philadelphia Fed's Dec non-manufacturing activity index fell by -0.1 point to -6.0 from -5.9 in November, weaker than expectations for an increase to -2.4.
The markets are discounting the chances at 9% for a -25 bp rate cut at the January 28-29 FOMC meeting.
EUR/USD (^EURUSD) is slightly lower by -0.02%, mainly due to the higher dollar.
The euro has some carry-over support from Monday when ECB President Lagarde said that ECB members remain alert to lingering price pressures in the services sector, although she said members remain confident that the CPI is nearing the ECB’s target.
Swaps are discounting the chances at 100% for a -25 bp rate cut by the ECB at its next meeting on January 30 and a 9% chance for a -50 bp rate cut at that meeting.
USD/JPY (^USDJPY) up +0.07% and is consolidating below last Friday's 5-month high. The yen has been weak over the past several weeks as government officials downplay the odds of a near-term BOJ rate hike. The BOJ last Thursday kept its overnight call rate unchanged at 0.25%. Also, BOJ Governor Ueda last Thursday suggested the BOJ may wait longer before raising interest rate when he said, "The overall picture on wages should be clearer by March or April, and it may take time to assess the full impact of the Trump administration's policies."
However, the yen saw support today after Finance Minister Kato said he's "deeply concerned about recent currency moves, including those driven by speculators."
February gold (GCG25) is down -2.5 (-0.10%), and March silver (SIH25) is up +0.006 (+0.02%). Gold prices are being undercut by today's slightly stronger dollar and higher T-note yields. 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.
