The dollar index (DXY00) today is down by -0.27%. The dollar fell back from Thursday’s 2-year high as strength in stocks today has reduced liquidity demand for the dollar. Losses in the dollar are limited after the US Dec ISM manufacturing index rose more than expected, a hawkish factor for Fed policy.
The US Dec ISM manufacturing index unexpectedly rose +0.9 to a 9-month high of 49.3, stronger than expectations of a decline to 48.2.
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 up by +0.15%. Today’s weakness in the dollar has sparked some short covering in the euro as it recovers slightly from Thursday’s 2-year low. Stronger-than-expected German labor market news today also gave the euro a boost.
The German Dec unemployment change rose by +10,000, showing a stronger labor market than expectations of +15,000. The Dec unemployment rate remained steady at 6.1%, better than expectations of an increase to 6.2%.
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 8% for a -50 bp rate cut at that meeting.
USD/JPY (^USDJPY) today is down by -0.08%. The yen today is slightly higher, based on speculation that the BOJ will raise interest rates at this month’s policy meeting. However, the yen gave up most of its gains today after T-note yields erased an early decline and moved higher on the stronger-than-expected US Dec ISM manufacturing report. Trading activity in the yen is below average, with markets in Japan closed for a bank holiday.
The yen also has support from the threat of intervention in the forex market by the Japanese government to support the yen. Last Friday, Japanese Finance Minister Kato said the government would take “appropriate” steps against excessive foreign exchange market movements after the yen tumbled to a 5-1/2 month low against the dollar last Thursday.
February gold (GCG25) today is down -9.90 (-0.37%), and March silver (SIH25) is up +0.310 (+1.04%). Precious metals today are mixed. Gold prices fell back from a 2-1/2 week high today on reduced safe-haven demand as stocks recovered some of Thursday’s losses. Also, today’s stronger-than-expected US Dec ISM manufacturing report pushed T-note yields higher and weighed on gold prices.
Today’s weaker dollar is supportive of metals prices. Also, expectations that the Fed and ECB will keep cutting interest rates are boosting demand for gold as a store of value. In addition, 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. Silver garnered support today on the stronger-than-expected US Dec ISM manufacturing report and better-than-expected German labor market news, bullish factors for industrial metals demand.
