Dollar Index Dips as Gold Prices Rise Following Economic Data
Market Reactions to US Economic Indicators and Global Events
The dollar index (DXY00) fell -0.31% on Friday, reaching a low not seen in 2-1/2 weeks. This drop was influenced by a decline in Treasury yields and a record high achieved by the S&P 500, which reduced demand for the dollar.
Markets are anticipating a 66% chance of a -25 basis point rate cut at the upcoming FOMC meeting on December 17-18.
Eurozone Economic Data Impact on EUR/USD
EUR/USD (^EURUSD) increased by +0.30% on Friday, reaching a new 1-week high. The currency pair benefited from the dollar’s weakness. However, disappointing Eurozone November core CPI results and a larger-than-expected decline in German October retail sales raised concerns about the European Central Bank (ECB) policy, which is negative for the euro. Additionally, dovish remarks from ECB officials further pressured the euro.
For November, Eurozone CPI increased +2.3% year-over-year, aligning with expectations, while core CPI rose +2.7%, below the predicted +2.8%.
The ECB’s inflation expectations for October showed a slight uptick to +2.5%, compared to +2.4% in September, surprising predictions that it would decline further to +2.3%. Meanwhile, 3-year expectations held steady at +2.1%.
German retail sales faced a sharp decline of -1.5% month-over-month, substantially worse than the anticipated -0.5%, marking the steepest drop in two years.
In October, German unemployment saw an increase of +7,000, which was better than the expected +20,000, with the unemployment rate remaining steady at 6.1%.
ECB Officials Discuss Potential Rate Cuts
ECB Vice President Guindos remarked, “Inflation in Europe is going quite well, the data are positive, although news on the Eurozone economy is less good.” Meanwhile, ECB Governing Council member Stournaras indicated the likelihood of a more aggressive interest rate reduction strategy if US tariffs threaten to push Europe into recession.
Swaps reflect a 100% chance of a -25 basis point rate cut by the ECB during their meeting on December 12, with a 15% chance of a -50 basis point cut.
Yen Strengthens Amid Mixed Economic Signals
USD/JPY (^USDJPY) decreased by -1.32% on Friday. The Japanese yen reached a new 5-week high against the dollar, driven by stronger-than-expected Tokyo November consumer prices, which boosted the possibility of additional Bank of Japan (BOJ) interest rate hikes. The drop in Treasury yields also supported the yen, although weaker reports on Japan’s October industrial production and retail sales created headwinds for the currency.
The consumer confidence index in Japan for November rose by +0.2, reaching 36.4, just shy of the expected 36.5.
October industrial production in Japan rose +3.0% month-over-month, underperforming the forecast of +4.0%. Retail sales rose only +0.1%, weaker than the predicted +0.4%.
The Tokyo CPI for November increased +2.6% year-over-year, surpassing expectations of +2.2%, while the index excluding fresh food and energy rose +1.9%, aligning with forecasts.
Precious Metals Find Support Amid Economic Uncertainty
December gold (GCZ24) ended Friday up +17.10 (+0.65%), while December silver (SIZ24) closed up +0.574 (+1.91%). The decline in the dollar index and falling global bond yields provided a boost to precious metals. Comments from ECB Vice President Guindos about stable inflation in Europe also spurred demand for gold as a protective asset. Additionally, increasing tensions from the Ukraine-Russia conflict heightened the appeal of safe-haven metals, especially after Russian President Putin’s threats regarding potential strikes in Kyiv.
Despite these gains, the enthusiasm for precious metals was moderated by stock market rallies, which reduced their demand as safe-haven assets. Furthermore, disappointing data on Japan’s industrial production and German retail sales negatively impacted silver prices, indicating weaker demand for industrial 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.
