The dollar index (DXY00) Monday fell by -0.07% and posted a 5-week low. Monday’s tumble in T-Note yields weakened the dollar’s interest rate differentials and weighed on the dollar. The dollar also came under pressure when President Trump on Sunday threatened to impose tariffs on Colombia after the country refused to take in deported immigrants from the US. However, the dollar recovered after a deal was reached with Colombia to take the deported migrants. The dollar also gained some support from strength in Monday’s US economic news after the Dec Chicago Fed national activity index rose to a 7-month high, and Dec new home sales and the Jan Dallas Fed manufacturing outlook survey rose more than expected.
The US Dec Chicago Fed national activity index rose +0.16 to a 7-month high of 0.15, stronger than expectations of -0.06.
US Dec new home sales rose +3.6% m/m to 698,000, stronger than expectations of 675,000.
The US Jan Dallas Fed manufacturing outlook survey unexpectedly rose +9.6 to a 3-1/4 year high of 14.1, versus expectations of a decline to 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) Monday retreated from a 5-week high and fell by -0.07%. Monday’s recovery in the dollar from sharp losses to little changed sparked long liquidation in the euro. The euro was also weighed down due to expectations for the ECB to cut interest rates by -25 bp at Thursday’s policy meeting. The euro on Monday initially moved higher due to dollar weakness, and after the German Jan IFO, the business climate rose more than expected.
The German Jan IFO business climate rose +0.4 to 85.1, stronger than expectations of 84.8.
Swaps are discounting the chances at 98% for a -25 bp rate cut by the ECB at its next meeting on January 30.
USD/JPY (^USDJPY) Monday fell by -0.87%. The yen on Monday rallied to a 5-week high against the dollar. Monday’s selloff in global equity markets sparked safe-haven buying of the yen. Also, Monday’s tumble in T-note yields was bullish for the yen. The yen also gained Monday after the Japan Nov leading index CI was revised upward.
The Japan Nov leading index CI was revised upward by +0.5 to 107.5 from the previously reported 107.0.
February gold (GCG25) Monday closed down -40.50 (-1.46%), and March silver (SIH25) closed down -0.771 (-2.47%). Precious metals Monday retreated, with silver posting a 3-week low. Precious metals tumbled Monday as the selloff in equity markets sparked the liquidation of precious metals positions to cover losses in stocks. Precious metals also fell back after President Trump threatened to impose tariffs on Colombia after the country initially said it would not take back deported migrants from the US. However, a deal between Colombia and the US was soon reached, and precious metals recovered from their worst levels. Gold prices also slid on reduced demand for gold as an inflation hedge as inflation expectations declined after the 10-year US breakeven inflation rate fell to a 2-1/2 week low Monday. Silver prices also came under pressure Monday after the China Jan manufacturing PMI unexpectedly contracted by the most in 5 months, a bearish factor for industrial metals demand.
Precious metals found some support Monday after the dollar index tumbled to a 5-week low. Also, Monday’s slump in global bond yields supports precious metals. In addition, Monday’s stock selloff has boosted safe-haven demand for precious metals.
