The dollar index (DXY00) today is up by +0.06%. The dollar saw support today from weakness in the yuan, which fell to a 14-month low against the dollar as 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. Gains in the dollar are muted due to strength in stocks and weakness in bond yields as the 10-year T-note yield today fell to a 1-week low, weakening 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) today is down by -0.27%, with support from dollar strength. Losses in the euro are limited by some positive carryover from Monday when ECB Governing Council member Holzmann said the ECB should consider waiting longer before its next rate cut if inflation remains sticky, a supportive factor for the euro. Trading activity is thin today, 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) today is down by -0.04%. The yen today climbed to a 1-week high against the dollar on year-end short-covering and position squaring. Lower T-note yields today are also supportive of the yen. Trading activity in the yen is thin today 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. Japanese Finance Minister Kato said last Friday that 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.
February gold (GCG25) today is up +12.10 (+0.46%), and March silver (SIH25) is down -0.072 (-0.24%). Precious metals today are 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. A stronger dollar today is undercutting metal prices. Silver prices were also under pressure 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.
