Dollar Gains on Retail Sales Surge Amid Market Movements
The dollar index (DXY00) is up by +0.03% as the dollar experiences slight gains following better-than-expected retail sales data for November. Additionally, today’s increase in the 10-year T-note yield to a 3-1/2 week high has improved the dollar’s appeal through interest rate differentials. However, a decline in stock prices has also raised the demand for the dollar. The dollar’s strength was somewhat offset by a weaker-than-anticipated rise in US manufacturing production.
Retail Sales Outperform, But Manufacturing Falls Short
US retail sales for November climbed by +0.7% month-over-month, surpassing forecasts of +0.6%. In contrast, retail sales excluding automobiles saw only a +0.2% increase, falling short of the expected +0.4% growth.
Additionally, US manufacturing production rose by +0.2% month-over-month, which was less than the expected +0.5%. Meanwhile, the December NAHB housing market index remained unchanged from November at 46, disappointing expectations of a slight uptick to 47.
Market Expectations for Federal Reserve Rate Cuts
The market is currently pricing in a 95% probability of a -25 basis point rate cut during the upcoming Federal Open Market Committee (FOMC) meeting on December 17-18.
Euro Weakens on Mixed Economic Indicators
In European currency news, EUR/USD (^EURUSD) dipped by -0.05%. The euro’s decline can be attributed to a stronger dollar and a sharp drop in the German IFO business climate index to a 4-1/2 year low. Comments from ECB Governing Council member Rehn contributed to downward pressure on the euro, as he signaled a continued decline in interest rates amid stabilizing inflation around the 2% target. Nonetheless, a surprise rise in the German ZEW expectations of economic growth index reached a 4-month high, providing some support against euro losses.
The German ZEW index increased by +8.3 to a surprising 15.7, while the IFO index fell by -0.9 to 84.7, both of which contrasted with market expectations.
Anticipation of ECB Rate Cuts Rises
Expectations are running high for a -25 basis point rate cut from the ECB at its next meeting on January 30, with a small 11% chance of a -50 basis point cut being considered.
Yen Shows Slight Recovery Amid Speculation of Government Intervention
USD/JPY (^USDJPY) is down by -0.45%. The yen has shown modest gains today after a previous dip to a 2-1/2 week low. This has led to speculation that further yen weakness could provoke verbal intervention from Japanese authorities, increasing pressure on the Bank of Japan (BOJ) to raise interest rates. However, any further gains for the yen may be limited due to rising T-note yields and expectations that the BOJ will maintain current interest rates during its meeting Thursday.
Precious Metals Face Pressure from Economic Data
In the commodities market, February gold (GCG25) fell by -15.20 (-0.57%) and March silver (SIH25) dropped by -0.242 (-0.78%). This downturn in precious metals follows the strong US retail sales data, which bolstered T-note yields and the dollar, raising concerns about the Fed potentially pausing rate cuts. Silver prices also retreated due to disappointing manufacturing production data, impacting demand for industrial metals. Additionally, long liquidation pressures are taking a toll on precious metal prices ahead of the FOMC meeting results announced on Wednesday.
Geopolitical Risks Support Gold Demand
Despite the pressure on precious metals, demand for gold as a safe-haven asset increased, spurred by Rehn’s dovish comments about continued interest rate cuts and stabilizing inflation. The anticipated Fed rate cut of -25 basis points after the FOMC meeting may favor precious metals. Moreover, geopolitical tensions, particularly surrounding the collapse of the Syrian government and the ongoing conflict in Ukraine, have strengthened support for gold.
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.
