Dollar Strengthens as Economic Data Surprises Markets
The dollar index (DXY00) rose by +0.14% today, rebounding from earlier losses to hover just below Thursday’s one-year high. Supported by six consecutive days of gains, the dollar continues its post-election rally. This trend is driven by speculation that Treasury note yields may rise due to inflationary pressures from President-elect Trump’s pro-tariff policies. Today’s positive economic data, including October retail sales and the November Empire manufacturing survey, further underpinned the dollar’s performance.
Retail Sales and Manufacturing Indicate Economic Resilience
US retail sales for October increased by +0.4% month-over-month, surpassing the expected +0.3%. Additionally, the September figure was revised up from +0.4% to +0.8%. The November Empire manufacturing survey also showed significant growth, rising +43.1 to a level of 31.2, marking a two-and-three-quarter year high. Furthermore, the import price index, excluding petroleum, rose +0.2% month-over-month, exceeding expectations of +0.1%. Meanwhile, October manufacturing production matched expectations with a decrease of -0.5% month-over-month. Currently, markets estimate a 55% chance of a -25 basis point rate cut at the upcoming FOMC meeting on December 17-18.
Eurozone Forecasts and Implications for the Euro
US economic data impacted the euro as well. The EUR/USD (^EURUSD) remained unchanged today after the euro initially gained on a European Commission report predicting a +0.8% GDP growth for the Eurozone in 2024, with a forecasted increase to +1.3% in 2025. The Commission also anticipates inflation in the Eurozone at +2.4% for 2024, with a return to the ECB’s 2% target by Q4 of 2025. Currently, swaps indicate a 100% probability of a -25 basis point rate cut by the ECB in their December 12 meeting, and a 23% chance of a -50 basis point cut.
Yen Shows Signs of Recovery
The USD/JPY (^USDJPY) declined by -0.61% today as the yen found support after dropping to a three-and-a-half month low against the dollar. Japanese economic reports showed Q3 GDP growth of +0.9% quarter-over-quarter, outpacing expectations of +0.7%. Additionally, the September industrial production figure was revised upward to +1.6% month-over-month from +1.4%. Japanese Finance Minister Kato indicated a strong commitment to intervene if currency fluctuations become excessive, which may limit further yen appreciation given the rising Treasury yields.
Precious Metals Gain Amid Market Volatility
In the commodities sector, December gold (GCZ24) rose by +5.70 (+0.22%), while December silver (SIZ24) increased by +0.196 (+0.64%). Prices of precious metals climbed due to safe-haven demand following a drop in stock markets. Silver’s rise was supported by the positive US retail sales data and Japan’s strong GDP growth, which benefits industrial metals. However, the demand for gold as an inflation hedge remains robust, fueled by political stability and ongoing tensions in the Middle East.
Despite higher Treasury yields and a stronger dollar presenting challenges, some investors continue to view precious metals favorably. Comments from Fed Chair Powell signaling a reluctance to lower interest rates, alongside Boston Fed President Collins’ statements that a December cut is not assured, contribute to the cautious outlook for precious metals.
On the date of publication, Rich Asplund did not hold positions in any of the securities mentioned in this article. All information and data in this article are solely for informational purposes. For more information, please view the Barchart Disclosure Policy here.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
