The Dollar Index Bounces Back, Supported by Interest Rates and Government Funding
On Monday, the dollar index (DXY00) rose by +0.44%, recovering some losses following Friday’s -0.73% decline. This uptick highlights the currency’s resilience amid shifting economic indicators.
Positive Support for the Dollar
The dollar found support from improving U.S. interest rate differentials, as the 10-year Treasury note yield increased by +6 basis points. Additionally, Congress’s passage of a stop-gap funding bill last Friday played a crucial role in preventing a government shutdown, which could have had adverse effects on the U.S. economy.
Economic Reports Weigh on the Dollar
Interestingly, the dollar strengthened even with Monday’s disappointing economic reports. The November U.S. durable goods orders fell -1.1% month-over-month, which was worse than the anticipated decrease of -0.3%. However, October’s figures were revised upward to +0.8% from +0.3%. Excluding transportation, durable goods orders decreased -0.1%, again underperforming the +0.3% forecast. In contrast, November’s capital goods orders excluding defense and aircraft—an indicator of capital spending—rose +0.7% month-over-month, surpassing expectations of +0.1%.
Moreover, new home sales for November rose by +5.9% to 664,000, falling short of the expected increase to 669,000. The December consumer confidence index from the Conference Board dropped -8.1 points to 104.7, which was significantly lower than the forecast of 113.2. Currently, markets suggest only a 9% chance of a -25 basis point rate cut at the upcoming FOMC meeting on January 28-29.
The Euro and Yen React to Global Trends
EUR/USD (^EURUSD) decreased by -0.23% primarily due to dollar strength. The euro did receive some support from ECB President Christine Lagarde, who indicated that the European Central Bank (ECB) is attentive to persistent price pressures in the services sector while expressing confidence in nearing its inflation target. In November, Germany’s import price index rose by +0.9% month-over-month and +0.6% year-over-year, exceeding expectations of +0.6% and +0.3%, respectively.
Markets are predicting a 100% likelihood of a -25 basis point rate cut by the ECB at its next meeting on January 30 and a 9% chance of a -50 basis point cut.
In another market move, USD/JPY (^USDJPY) increased by +0.47%, although it remains below the five-month high reached last Friday. The yen suffered significantly last week after the Bank of Japan (BOJ) decided to keep its overnight call rate steady at 0.25%. BOJ Governor Ueda remarked that the central bank may wait longer for potential rate hikes, citing a need for clarity on wage trends by March or April and the need to evaluate the effects of recent U.S. policies.
Precious Metals Under Pressure
As for precious metals, February gold (GCG25) ended down -16.90 (-0.64%), while March silver (SIH25) rose by +0.231 (+0.77%). Gold prices faced downward pressure due to the stronger dollar and rising Treasury yields. Nonetheless, geopolitical concerns—stemming from the recent collapse of the Syrian government and intensified hostilities in the Ukraine-Russia conflict—continue to present safe-haven support for these 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.
