The dollar index (DXY00) today is down by -0.31%. The dollar tumbled today as T-note yields dropped on the Fed-friendly US Dec CPI report that showed an unexpected easing of core inflation. Also, today’s report showed that the US Jan Empire manufacturing survey of general business conditions unexpectedly fell to an 8-month low, which is bearish for the dollar. In addition, today’s sharp rally in stocks has reduced liquidity demand for the dollar.
The US Dec CPI rose to +2.9% y/y from +2.7% y/y in Nov, right on expectations. Dec CPI ex-food and energy unexpectedly eased to +3.2% y/y +3.3% y/y in Nov, better than expectations of no change at +3.3% y/y.
The US Jan Empire manufacturing survey general business conditions unexpectedly fell -14.7 to an 8-month low of -12.6, weaker than expectations of an increase to 3.0.
The markets are discounting the chances at 3% for a -25 bp rate cut at the January 28-29 FOMC meeting.
EUR/USD (^EURUSD) today is up by +0.17%. The euro is moderately higher today after the dollar tumbled on a weaker-than-expected US Dec CPI report. The euro also found support in today’s news, which showed that the Eurozone Nov industrial production rose as expected. Gains in the euro are limited due to dovish comments from ECB Vice President Guindos, who said he expects the ECB to keep easing its monetary policy.
Eurozone Nov industrial production rose +0.2% m/m, which is right on expectations.
ECB Vice President Guindos said, “We expect to continue to further reduce the restrictiveness of monetary policy as the latest information suggests that the economy is losing momentum.”
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) today is down by -1.06%. The yen rallied to a 3-1/2 week high against the dollar today after comments from BOJ Governor Ueda bolstered speculation the BOJ will raise interest rates next week. The yen also garnered support from today’s Japanese economic news, which showed that Dec machine tool orders rose by the most in 2-1/2 years. Gains in the yen accelerated today when the dollar and T-note yields tumbled on the Fed-friendly US Dec CPI report.
Japan Dec machine tool orders rose +11.2% y/y, the largest increase in 2-1/2 years.
BOJ Governor Ueda said he heard encouraging views of rising confidence over wage increases and “we will raise interest rates if improvement continues in the economy and in prices.”
February gold (GCG25) today is up +19.10 (+0.71%), and March silver (SIH25) is up +0.664 (+2.19%). Precious metals today are rallying due to a weaker dollar and lower global bond yields. Gains in precious metals accelerated today after UK, and US December core consumer prices rose less than expected, which may prompt the BOE and Fed to cut interest rates. Gold also found support today as a store of value based on dovish comments from ECB Vice President Guindos, who said he expects the ECB to keep easing monetary policy. Precious metals have continued safe-haven support from geopolitical risks after the recent collapse of the Syrian government, Middle East tensions, and the escalation of hostilities in the Ukraine-Russia conflict. Silver prices also garnered carryover support today from a rally in copper prices to a 2-month high.
