The dollar index (DXY00) Thursday fell by -0.13% in thin holiday trade. An increase in US weekly continuing unemployment claims to a 3-year high raised concerns about labor market strength and weighed on the dollar. The decline in T-note yields from early highs Thursday also undercut the dollar. In addition, a rebound in stocks curbed liquidity demand for the dollar.
Weekly US labor market news is mixed. Weekly initial unemployment claims unexpectedly fell -1,000 to a 1-month low of 219,000, showing a stronger labor market than expectations of an increase to 223,000. However, weekly continuing unemployment claims rose +46,000 to a 3-year high of 1.910 million, above expectations of 1.881 million and a sign that it is taking longer for out-of-work people to find a job.
The markets are discounting the chances at 9% for a -25 bp rate cut at the January 28-29 FOMC meeting.
EUR/USD (^EURUSD) Thursday rose by +0.11%. The euro on Thursday posted modest gains due to weakness in the dollar. Gains in the euro were limited on negative carryover from Tuesday when ECB Governing Council member Vujcic said that ECB projections point to further interest rate cuts. On Thursday, trading activity in the euro was below normal, with European markets closed for the Christmas and Boxing Day holidays.
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) Thursday rose by +0.38% and posted a new 5-month high. The yen has been under pressure over the past several weeks as government officials downplay the odds of a near-term BOJ rate hike. Last Thursday, the BOJ kept its overnight call rate unchanged at 0.25%. The yen extended its losses after BOJ Governor Ueda late Wednesday avoided giving any clues about a possible interest rate hike, further pressuring the yen.
February gold (GCG25) Thursday closed up +18.40 (+0.70%), and March silver (SIH25) closed up +0.106 (+0.35%). Precious metals on Thursday settled moderately higher, with silver posting a 1-week high. Thursday’s weaker dollar was bullish for metals. Gold also garnered support as a store of value after BOJ Governor Ueda avoided giving any clues about a possible interest rate hike on Wednesday. In addition, an increase in inflation expectations boosted demand for gold as an inflation hedge after the 10-year breakeven inflation rate rose to a 1-month high Thursday of 2.366%.
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 prices have support on hopes of increased industrial metals demand in China on reports that China will launch additional stimulus measures in 2025. Thursday’s rebound in stocks limited the upside in precious metals.
