Dollar Index Rebounds as Consumer Sentiment Soars
The dollar index (DXY00) increased by +0.30% on Friday, marking a recovery from a 3-1/2 week low as it edged upward. This surge was aided by positive consumer sentiment data from the University of Michigan, which indicated a rise to an 8-month high. Additionally, comments from the Federal Reserve’s officials hinted at a cautious approach to interest rate cuts, further bolstering the dollar’s position.
Labor Market Signals Mixed as Payrolls Beat Expectations
Initially, the dollar dipped following the US Nov payroll report, which revealed an unexpected rise in the unemployment rate. This news raised expectations of a Federal Reserve rate cut at the upcoming Dec 17-18 FOMC meeting to 85%, up from 70% prior to the report. In contrast, US Nov nonfarm payrolls rose by +227,000, surpassing predictions of +220,000, while October’s figures were revised up significantly from +12,000 to +36,000. However, the unemployment rate ticked up by +0.1 to 4.2%, indicating a weaker labor market than the expected stable rate of 4.1%.
Wages and Consumer Sentiment on the Rise
The data revealed that average hourly earnings in November increased by +0.4% month-over-month and +4.0% year-over-year, both figures higher than anticipated. Correspondingly, the University of Michigan’s consumer sentiment index for December rose by +2.2 to reach 74.0, outpacing expectations of 73.2.
Moreover, US Oct consumer credit surged by +$19.239 billion, significantly exceeding forecasts of +$10.010 billion. Cleveland Fed President Hammack indicated that policymakers are “at or near” the point of slowing down interest rate cuts as the economy remains strong and inflation continues to be elevated.
Euro Suffers as Economic Data Disappoints
On Friday, the euro fell by -0.26%, slipping from a 3-week high. This decline was attributed to the dollar’s recovery and disappointing German industrial production data from October, which fell -1.0% month-over-month, contrary to expectations of +1.0%.
The euro initially gained strength when the dollar dipped after the payroll report, but this was short-lived. Market sentiment improved on Thursday following easing political risks in France, as National Rally leader Le Pen expressed confidence in President Macron’s stability.
Bank of Japan Holds Cautious Outlook Amid Mixed Reports
The USD/JPY (USDJPY) fell by -0.09% as the yen strengthened due to stronger-than-expected October economic reports. Japan’s household spending dipped by -1.3% year-over-year, a less severe drop than the anticipated -2.5%. Additionally, real cash earnings remained unchanged year-over-year, outperforming expectations of a -0.1% decline. However, the Japan Oct leading index CI fell -0.5 to 108.6, which was below the anticipated 108.8 level.
Precious Metals React to Economic Uncertainty and Fed Stance
February gold (GCG25) closed Friday at +11.20 (+0.42%), and March silver (SIH25) settled at +0.052 (+0.16%). Precious metals saw a slight recovery from early losses, supported by the favorable payroll report that increased the likelihood of a Fed rate cut this month and a decline in global bond yields. The ongoing Ukraine-Russia conflict also heightened demand for safe-haven assets.
Despite this rebound, gains were limited as the S&P 500 reached a new high, decreasing the demand for safe-haven investments. Further, the dollar’s recovery from a 3-1/2 week low and hawkish comments from Fed officials added downward pressure. Notably, the unexpected decline in German industrial production dampened prospects for silver, a key industrial metal.
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.
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