The dollar index (DXY00) Wednesday rose by +0.50% after CNN reported that President-elect Trump is considering declaring a national emergency to push through his tariff plans, which could roil global trade and boost inflation pressures. The dollar extended its gains after the 10-year T-note yield jumped to an 8-1/2 month high, strengthening the dollar’s interest rate differentials. The dollar maintained its gains on the hawkish minutes of the Dec 17-18 FOMC meeting.
Wednesday’s US labor market news was mixed for the dollar as the Dec ADP employment change rose less than expected, but weekly jobless claims unexpectedly fell to a 10-1/2 month low. Dovish comments today from Fed Governor Waller limited gains in the dollar when he said he believes more Fed interest rate cuts will be appropriate.
The US Dec ADP employment change rose +122,000, weaker than expectations of +140,000.
US weekly initial unemployment claims unexpectedly fell -10,000 to a 10-1/2 month low of 201,000, showing a stronger labor market than expectations of an increase to 215,000.
US Nov consumer credit unexpectedly fell -$7.489 billion, weaker than expectations of a +$10.500 billion increase and the biggest decline in 15 months.
Fed Governor Waller said, “The extent of further easing will depend on what the data tell us about progress toward 2% inflation, but my bottom-line message is that I believe more cuts will be appropriate.”
The minutes of the Dec 17-18 FOMC meeting stated that “participants indicated that the FOMC was at or near the point at which it would be appropriate to slow the pace of policy easing.”
The markets are discounting the chances at 5% for a -25 bp rate cut at the January 28-29 FOMC meeting.
EUR/USD (^EURUSD) Wednesday fell by -0.28%. Strength in the dollar Wednesday weighed on the euro. Also, Wednesday’s report showing Eurozone Dec economic confidence fell to a 15-month low was bearish for the euro. In addition, weaker-than-expected economic news from Germany, Europe’s largest economy, pressured the euro after German Nov factory orders and Nov retail sales fell more than expected.
Eurozone Dec economic confidence fell -1.9 to a 15-month low of 93.7, weaker than expectations of 95.6.
Eurozone Nov PPI rose +1.6% m/m and fell -1.2% y/y, stronger than expectations of +1.5% m/m and -1.4% y/y.
German Nov factory orders fell -5.4% m/m, weaker than expectations of -0.2% m/m.
German Nov retail sales unexpectedly fell -0.6% m/m, weaker than expectations of a +0.5% m/m increase.
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) Wednesday rose by +0.22%. The yen on Wednesday added to this week’s losses and fell to a 5-1/2 month low against the dollar. Higher T-note yields and dollar strength on Wednesday pressured the yen. Also, Wednesday’s Japanese economic news undercut the yen after Dec consumer confidence unexpectedly declined, and the BOJ’s quarterly report showed supply in Japan’s economy exceeded demand for an 18th straight quarter, signaling weak price pressures that are dovish for BOJ policy.
The Japan Dec consumer confidence index unexpectedly fell -0.2 to 36.2, weaker than expectations of an increase to 36.6.
Japan’s Q3 output gap was revised upward to -0.53% from -0.58%. The BOJ quarterly data shows supply in Japan’s economy exceeded demand for the 18th straight quarter in Q3, a sign that inflationary pressures in the economy continue to lack strength.
February gold (GCG25) Wednesday closed up +7.00 (+0.26%), and March silver (SIH25) closed up +0.004 (+0.01%). Precious metals on Wednesday closed slightly higher on increased safe-haven demand amid fears President-elect Trump’s tariff policies could ignite a global trade war. CNN reported Wednesday that Mr. Trump is considering declaring a national economic emergency to push through his tariff plans. Dovish Fed comments Wednesday also boosted demand for gold as a store of value after Fed Governor Waller said he believes more Fed interest cuts will be appropriate. Gold also has carryover support from Tuesday on increased demand from China after the PBOC expanded its gold reserves for a second month, boosting its gold holdings to 73.29 troy million ounces in December from 72.96 million troy ounces in November. 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.
Dollar strength Wednesday limited gains in precious metals. Also, higher global bond yields on Wednesday were bearish for precious metals. In addition, the minutes of the Dec 17-18 FOMC meeting were bearish for precious metals as policymakers said they were near the point at which it would be appropriate to slow the pace of policy easing. Gains in silver are limited after German Nov factory orders fell more than expected, a negative factor for industrial metals demand.
