The dollar index (DXY00) on Wednesday fell by -0.51% and posted a 5-month low. The dollar Wednesday was under pressure from lower T-note yields. Also, expectations for the Fed to begin cutting interest rates in 2024 are weighing on the dollar.
U.S. economic news Wednesday showed weakness and was bearish for the dollar. The Dec Richmond Fed manufacturing sentiment index unexpectedly fell -6 to an 8-month low of -11, weaker than expectations of an increase to -3.
The markets are discounting the chances for a -25 bp rate cut at 18% for the next FOMC meeting on Jan 30-31 and have fully discounted (104%) the chance for that -25 bp rate cut for the following meeting on March 19-20.
EUR/USD (^EURUSD) on Wednesday rose by +0.56% and posted a 5-month high. The weakness in the dollar on Wednesday was bullish for the euro. Speculation that the Fed cuts interest rates before the ECB does is weighing on the dollar to benefit the euro. Gains in the euro were limited after the 10-year German bund yield fell to a 1-year low, weakening the euro’s interest rate differentials.
Swaps are pricing in the chances for a -25 bp rate cut by the ECB at 5% for its next meeting on Jan 25 and at 67% for the following meeting on March 7.
USD/JPY (^USDJPY) on Wednesday fell by -0.37%. On Wednesday, the yen recovered from early losses and rallied to a 1-1/2 week high against the dollar. Short covering in the yen emerged Wednesday when BOJ Governor Ueda said the BOJ could shift monetary policy before complete wage figures from small to medium-sized firms come out. Lower T-note yields Wednesday were also bullish for the yen.
The yen Wednesday initially moved lower after the dovish summary of the December 18-19 BOJ meeting, which showed several BOJ members indicating they see no rush in ending the BOJ’s negative rate policy. Also, Wednesday’s news that showed a decline in Japan housing starts to a 7-month low is negative for the yen.
Japan Nov housing starts fell -8.6% y/y to a 7-month low of 775,000.
February gold (GCG4) Wednesday closed +23.30 (+1.13%), and Mar silver (SIH24) closed +0.245 (+1.00%). Gold and silver on Wednesday posted moderate gains, with gold climbing to a 3-week high. Wednesday’s decline in the dollar index to a 5-1/4 month low is bullish for metals. Also, a slump in global bond yields on Wednesday supported precious metals. Gains in silver were limited on industrial metals demand concerns after Wednesday’s economic news showed an unexpected fall in the U.S. Dec Richmond Fed manufacturing sentiment index to an 8-month low and a decline in Japan Nov housing starts to a 7-month low.
On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
