Dollar Dips Amid Yen Recovery and Trade Deficits

The dollar index (DXY00) is slightly down today, dropping by -0.06%. The dollar faces pressure primarily due to a stronger yen after Japanese Finance Minister Kato expressed concerns about instability in the foreign exchange market. Following a notable decline in the yen—falling to a five-month low against the dollar on Thursday—the greenback stumbled further after the U.S. trade deficit for November came in wider than anticipated. Nevertheless, the dollar has rebounded from its lows as a selloff in stocks raised demand for its liquidity.

In November, the U.S. trade deficit increased to -$102.9 billion, up from -$98.3 billion in October, surpassing expectations of -$101.2 billion.

Key Economic Indicators Reflect Mixed Signals

In another surprise, U.S. wholesale inventories for November unexpectedly decreased by -0.2% month-over-month, while a small increase of +0.3% month-over-month was noted in retail inventories, matching projections.

Currently, markets are pricing in just an 11% probability of a -25 basis point rate cut at the upcoming FOMC meeting on January 28-29.

Euro Gains Slightly as Dollar Weakens

Today, the EUR/USD (^EURUSD) is up by +0.01% as the dollar’s weakness influences the euro’s performance. The euro has gained support from an uptick in the 10-year German bund yield, reaching a 1-1/4 month high, which enhances its appeal against the dollar. Additionally, surges in European natural gas prices, now at a three-week high, have raised inflation forecasts, favoring hawkish positions for the ECB.

Swaps markets indicate a 100% likelihood of a -25 basis point rate cut by the ECB at their next meeting scheduled for January 30, with a 12% chance for a -50 basis point cut on the same date.

Yen Rebounds on Positive Economic News

The USD/JPY (^USDJPY) has decreased by -0.12%, as the yen shows a modest recovery after its significant dip on Thursday. Today’s short covering was triggered by encouraging Japanese economic data reflecting November’s industrial production and retail sales. A report indicating that December’s Tokyo CPI rose at the fastest rate in 14 months pushed the 10-year JGB bond yield to a 13-year high of 1.125%. This favorable news supports the yen’s trajectory, especially following Minister Kato’s comments on potentially intervening in the currency markets.

Japan’s Economic Performance Shows Mixed Results

Japan’s November industrial production declined by -2.3% month-over-month, a smaller drop than the expected -3.5%. Conversely, retail sales during the same month rose by +1.8% month-over-month, significantly outpacing predictions of +0.5% and marking the largest increase in nearly four and a half years.

The December Tokyo CPI increased by +3.0% year-over-year, exceeding forecasts of +2.9% and representing the largest climb observed over the past 14 months. However, CPI excluding fresh food and energy rose by +1.8% year-over-year, which fell short of the expected +1.9%.

Precious Metals Struggle Amid Changing Economic Landscape

February gold (GCG25) is down by -24.30 (-0.92%), and March silver (SIH25) sees a decline of -0.444 (-1.46%). Precious metals face pressure due to rising global bond yields and strong economic data from Japan, which suggest that the BOJ might consider raising rates soon. Despite the drop in precious metals, some demand persists in the face of geopolitical tensions stemming from the Syrian government collapse and the ongoing conflict between Russia and Ukraine.

Furthermore, silver maintains some support from expectations of increased industrial demand in China based on reports of additional stimulus initiatives anticipated for 2025.

On the date of publication,

here.
More news from Barchart

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.