Dollar Index Hits 13-Month High Amid Mixed Economic Signals
The dollar index (DXY00) rose by +0.30% on Thursday, marking a new 13-month high. After facing early losses, the dollar bounced back as Treasury note yields increased, improving interest rate differentials. The recent U.S. economic indicators presented a mixed picture for the dollar.
Dovish Fed Comments Weigh on Initial Dollar Performance
Initially, the dollar struggled due to dovish statements from key Federal Reserve officials. New York Fed President Williams and Chicago Fed President Goolsbee expressed expectations of continued interest rate cuts until they are closer to neutral levels.
Labor Market Shows Strength, Unemployment Claims Fall
In a positive sign for the labor market, U.S. weekly initial unemployment claims unexpectedly decreased by -6,000, reaching a 6-1/2 month low of 213,000. This came in contrast to expectations of an increase to 220,000. However, other indicators presented challenges: the November Philadelphia Fed business outlook survey dropped -15.8, landing at -5.5—far below the anticipated 8.0. Additionally, leading indicators for October fell -0.4% month-over-month, against expectations of a smaller decline of -0.3%.
Home Sales and Inflation Insights
On a brighter note, existing home sales for October increased by +3.4% month-over-month, hitting 3.96 million, exceeding the forecast of 3.95 million. New York Fed President Williams remarked on the positive growth in the U.S. economy, noting that the disinflationary process is likely to continue. He indicated that the current monetary policy is restrictive and mentioned the possibility of adjusting the fed-funds rate to more normal levels over time.
Similarly, Chicago Fed President Goolsbee expressed confidence that inflation is tapering toward the Fed’s target, suggesting that interest rates may be lower than present in the following year.
Market Speculations on Upcoming Rate Cuts
Currently, market expectations suggest a 56% probability of a -25 basis point rate cut during the upcoming FOMC meeting on December 17-18.
Euro Experiences Pressure Amid ECB Comments and Global Tensions
The euro (EUR/USD) fell by -0.60% on Thursday, reaching a 13-month low, largely due to dovish remarks from ECB Governing Council member Stournaras. He advocated cutting interest rates at every meeting until they approach the estimated neutral rate of about 2%. Ongoing tensions from the Ukraine-Russia conflict further dampened euro performance after reports of missile strikes on Dnipro. Conversely, new car registrations in the Eurozone rose +1.1% year-on-year to 866,000 units, marking the largest increase in four months.
Consumer Confidence Declines in Eurozone
Disappointingly, the Eurozone’s consumer confidence index unexpectedly dropped -1.2 to a five-month low of -13.7, contrary to expectations of an uptick to -12.4.
Expectations for ECB Rate Cuts Rise
ECB officials have expressed a cautious stance on inflation, with Stournaras asserting that rate cuts should continue until reaching neutral levels, while Holzmann emphasized the necessity of maintaining restrictive monetary policy until inflation stabilizes at 2%. Market swaps indicate a near certainty (100%) of a -25 basis point rate cut at the ECB meeting on December 12, with a 17% chance for a more significant -50 basis point cut.
Yen Rises Against Dollar Amid Safe-Haven Demand
The USD/JPY pair saw a -0.61% decline on Thursday, influenced by short covering after BOJ Governor Ueda highlighted his awareness of foreign exchange impacts on the economy. The increase in Japanese bond yields, which saw the 10-year JGB bond yield reach a 4-1/2 month high of 1.100%, further strengthened the yen. The ongoing Ukraine-Russian hostilities also heightened demand for safe-haven assets, including the Japanese yen.
Precious Metals See Mixed Results Amid Global Shift
In the precious metals market, December gold (GCZ24) closed up +23.20 (+0.87%), while December silver (SIZ24) fell by -0.062 (-0.29%). Despite tensions from the Ukraine-Russia conflict driving investor demand for safe havens, a rising dollar index typically places pressure on metals prices. The surprising strength in the U.S. labor market could complicate prospects for further Fed rate cuts, affecting precious metals performance. Meanwhile, silver faces challenges due to concerns over potential policy impacts from the Trump administration on global economic growth.
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
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
