U.S. Dollar Gains Amid Mixed Economic Signals
The dollar index (DXY00) experienced a modest increase of +0.06% on Friday. After initially starting lower, the dollar rebounded, buoyed by stronger-than-expected U.S. economic data, including October retail sales and the November Empire State manufacturing survey. Additionally, comments from Boston Fed President Collins, suggesting that a December interest rate cut is not guaranteed, supported the dollar’s recovery. However, profit-taking pressures followed after the dollar reached a 1-year high on Thursday, marking six sessions of consecutive gains.
Strong Retail Sales Boost Economic Optimism
In October, retail sales rose by +0.4% month-over-month, surpassing expectations of +0.3%. Furthermore, September’s figure was revised upward, indicating a significant increase to +0.8% from +0.4%.
The November Empire State manufacturing survey reported a notable increase, climbing +43.1 to a new 2-3/4 year high of 31.2, exceeding expectations of 0.0. In another positive sign, the U.S. October import price index excluding petroleum rose +0.2% month-over-month against expectations of +0.1%. However, there was a slight dip in manufacturing production, which fell -0.5% month-over-month, aligning with forecasts.
Market predictions currently place a 58% probability on a -25 basis point rate cut at the upcoming December 17-18 FOMC meeting.
Eurozone Forecasts Impact Euro Performance
The euro (EUR/USD) slipped by -0.02% on Friday as it retreated from an early advance, struggling against a stronger dollar. The European Commission had initially lifted the euro’s prospects by projecting a +0.8% GDP growth for the Eurozone in 2024, with an expected increase to +1.3% in 2025.
The commission also anticipates Eurozone inflation at +2.4% next year, predicting a return to the ECB’s target of 2% by the fourth quarter of 2025. Market swaps currently predict a 100% chance of a -25 basis point rate cut by the ECB in their December 12 meeting, with a 23% likelihood of a -50 basis point cut.
Japanese Yen Rebounds on Positive Economic News
The yen (USD/JPY) dropped -1.24% on Friday after touching a 3-1/2 month low. However, a stronger-than-expected economic report showing a +0.9% growth in Japan’s Q3 GDP, compared to expectations of +0.7%, contributed to a recovery in the currency. Additionally, the September industrial production figure was revised upward to +1.6% month-over-month from the previous +1.4%.
Japanese Finance Minister Kato assured that authorities would act “with a very high sense of urgency” if there are excessive movements in the foreign exchange markets, further supporting yen stability.
Precious Metals Retreat Amid Dollar Strength
December gold (GCZ24) finished down -2.80 (-0.11%), while December silver (SIZ24) dropped -0.137 (-0.45%). Precious metals lost early gains as the dollar rebounded. Hawkish statements from Fed Chair Powell and Boston Fed President Collins about interest rates also pressured these commodities. Moreover, a decline in inflation expectations drove down the demand for gold as an inflation hedge.
Initially, a downturn in stocks had pushed investors toward safe-haven assets like gold and silver. However, solid data from U.S. retail sales and Japan’s GDP initially provided some support for these metals. Although demand for gold may remain stable as Republicans regain control of Congress, boosting the potential for inflationary policies, ongoing tensions in the Middle East continue to fuel safe-haven interest in precious metals.
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.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
