The dollar index (DXY00) today is down by -0.43%. The dollar is under pressure today on a report from Blomberg that said President-elect Trump’s incoming economic team is discussing a gradual approach to raising tariffs, to boost negotiating leverage and avoid inflation. The dollar added to its losses after T-note yields fell on the weaker-than-expected US Dec PPI report, a dovish factor for Fed policy.
US Dec PPI final demand rose +0.2% m/m and +3.3% y/y, weaker than expectations of +0.4% m/m and +3.5% y/y. Also, Dec PPI ex-food and energy was unchanged m/m and rose +3.5% y/y weaker than expectations of +0.3% m/m and +3.8% y/y.
Bloomberg reported that President-elect Trump’s incoming economic team is considering graduated tariff hikes of about 2% to 5% a month rather than aggressive one-time increases to avert inflation spikes.
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 +0.28%. The euro today is moderately higher as the dollar fell on a Bloomberg report that said the incoming Trump economic team will push for gradual tariff hikes to avoid an inflation spike. The euro maintained its gains on hawkish comments from ECB Governing Council member Holzmann, who said the outcome of the ECB meeting later this month is unclear, with core inflation still high in the Eurozone. The euro is also supported by higher European government bond yields as the 10-year German bund yield today climbed to a 6-1/2 month high, which strengthens the euro’s interest rate differentials.
ECB Governing Council member Holzmann said it’s unclear if the ECB will lower interest rates again at its January 30 policy meeting, citing “hiccups” in Eurozone inflation.
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 up by +0.27%. The yen today is moderately lower after BOJ Deputy Governor Himino was vague when asked if the BOJ would raise interest rates at next week’s policy meeting. Also, weaker-than-expected Japanese economic news on the Dec eco watchers outlook survey weighed on the yen today. Losses in the yen are limited after the Nikkei Stock Index today tumbled to a 6-week low, which sparked some safe-haven buying of the yen. Also, today’s jump in the Japan 10-year JGB government bond yield to a 13-year high of 1.262% has strengthened the yen’s interest rate differentials.
The Japan Dec eco watchers outlook survey unexpectedly fell -0.6 to 48.8, weaker than expectations of an increase to 49.9.
BOJ Deputy Governor Himino said, “In conducting monetary policy, it is difficult but essential to judge the right timing,” and the BOJ will discuss raising interest rates at next week’s policy meeting.
February gold (GCG25) today is up +5.20 (+0.19%), and March silver (SIH25) is up +0.126 (+0.42%). Precious metals recovered from early losses today and are moderately higher. The dollar’s weakness today is supporting precious metals prices. Gold also has support as an inflation hedge after the US 10-year breakeven inflation rate rose to a 14-1/2 month high today. 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.
Precious metals today initially moved lower after a Bloomberg report said that President-elect Trump’s incoming economic team is considering gradual tariff hikes rather than a sharp one-time increase to avert inflation spikes. Also, higher global bond yields today are bearish for precious metals. In addition, the strength in stocks today has reduced safe-haven demand for precious metals.
