Dollar Index Strengthens Amid Mixed Economic Signals
The dollar index (DXY00) rose by +0.09% on Monday. After initially falling, the dollar recovered from early losses and made slight gains. Support from higher T-note yields, coupled with a decline in stocks, enhanced liquidity demand for the dollar.
Unexpected Drop in Wholesale Sales Affects Dollar Outlook
Initially, the dollar weakened due to strength in the yuan. Chinese leaders indicated an expansion in fiscal spending and a shift towards more “extraordinary policy adjustments” to stimulate the economy. Furthermore, a surprise dip in US October wholesale sales weighed on the dollar. Analysts are also forecasting that the FOMC will likely cut interest rates by 25 basis points during next week’s policy meeting.
US October wholesale trade sales unexpectedly fell by -0.1% month-over-month, which was below the estimated increase of +0.2%. This marks the first decline in four months. The market is currently pricing in an 86% probability of a 25 basis point rate cut at the December 17-18 FOMC meeting.
Eurozone Confidence Declines as Euro Weakens
The EUR/USD (^EURUSD) fell by -0.19% on Monday. The euro, after an early gain, slipped following the dollar’s rebound. The Eurozone’s December Sentix investor confidence index fell unexpectedly, reaching a 13-month low. Anticipations of an interest rate cut by the ECB at Thursday’s policy meeting are also adversely affecting the euro.
The Eurozone’s December Sentix investor confidence index dropped by -4.7 to a low of -17.5, contrary to expectations of an increase to -12.3. Swaps indicate a 100% likelihood of a 25 basis point cut from the ECB this Thursday and a 7% chance of a 50 basis point cut.
Yen Declines on Economic Comments Despite Positive GDP Revision
USD/JPY (^USDJPY) rose by +0.85%. The yen landed at a one-week low after Japanese Prime Minister Ishiba remarked that Japan had not yet escaped deflation, dampening speculation of a Bank of Japan interest rate hike at the December 19 meeting. Higher T-note yields on Monday also pressured the yen. Nevertheless, better-than-expected economic news from Japan, including Q3 GDP and the November eco watchers outlook survey, provided some support.
The November eco watchers outlook survey climbed +1.1 to 49.4, surpassing expectations of 48.7. Additionally, Japan’s Q3 GDP was revised upward to +1.2% (quarter-over-quarter annualized) from a previous estimate of +1.0%.
Precious Metals Get a Boost from Geopolitical Tensions
February gold (GCG25) closed up +26.20 (+0.99%), while March silver (SIH25) rose by +1.023 (+3.24%). Both precious metals rallied, with gold reaching a two-week high and silver a one-month peak. The rising geopolitical risks in the Middle East have heightened demand for safe-haven assets. Notably, China’s People’s Bank bought 160,000 ounces of gold in the previous month, marking its first purchase since April, which further supported gold prices. Silver prices also benefitted after China’s Politburo signaled intentions to enhance fiscal measures to revitalize the economy.
However, precious metals retreated from their highest levels after the dollar index regained ground, and higher T-note yields also weighed on prices.
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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