Dollar Gains Ground Amid Mixed Economic Signals
Demand for the Dollar Rises with Weaker Yuan and Unexpected Home Price Boost
The dollar index (DXY00) is slightly up today by +0.06%. Support for the dollar comes from a significant decline in the yuan, which has dropped to a 14-month low against the dollar. This comes after China’s December manufacturing PMI unexpectedly fell by -0.2 to 50.1, below the anticipated level of 50.2. Additionally, the dollar continued to climb following news that US home prices increased more than expected in October. However, the dollar’s upward momentum is tempered by a robust stock market and falling bond yields, particularly as the 10-year T-note yield has reached a one-week low, affecting the dollar’s interest rate appeal.
In October, the US S&P CoreLogic composite-20 home price index showed positive results, increasing by +0.3% month-over-month and +4.2% year-over-year, surpassing predictions of +0.2% month-over-month and +4.1% year-over-year.
Current market sentiment suggests an 11% probability for a -25 basis point rate cut during the FOMC meeting scheduled for January 28-29.
Euro Weakens Against the Dollar While ECB Faces Rate Speculation
The EUR/USD (^EURUSD) pair is down by -0.27%, largely driven by the strength of the dollar. Nonetheless, losses for the euro are somewhat moderated by optimistic comments from ECB Governing Council member Holzmann, who indicated that the ECB might wait longer for the next rate cut if inflation trends persist. It is worth noting that trading activity has been sluggish today, as several European markets are closed for the New Year’s holiday.
Market swaps reflect a complete pricing in (100%) of a -25 basis point rate cut by the ECB in their upcoming meeting on January 30, while there is an 11% chance of a more significant -50 basis point reduction at that meeting.
Yen Strengthens as Japan Markets Observe Holiday
The USD/JPY (^USDJPY) exchange rate is down by -0.04%. The yen has risen to a one-week high against the dollar, spurred by year-end short-covering and position adjustments. The drop in T-note yields has also favored the yen’s strength, although trading remains quiet due to a bank holiday in Japan.
The yen is further supported by concerns regarding potential intervention from the Japanese government to stabilize its currency. Last Friday, Japanese Finance Minister Kato emphasized the government’s intention to undertake “appropriate” measures against excessive fluctuations in the foreign exchange market. It’s notable that just last Thursday, the yen had plunged to a 5.5-month low against the dollar.
Precious Metal Prices Fluctuate Amid Geopolitical Concerns
February gold (GCG25) is up by +12.10 (+0.46%), while March silver (SIH25) is down by -0.072 (-0.24%). Precious metal markets are mixed, with silver hitting a one-week low. Despite some safe-haven demand stemming from geopolitical tensions—particularly related to the recent turmoil in the Syrian government and escalating conflicts in Ukraine—rising dollar strength is pressuring metal prices. The disappointing Chinese manufacturing PMI, which dropped -0.2 to 50.1, also negatively impacts demand for industrial metals.
On the date of publication, Rich Asplund did not hold any positions, either directly or indirectly, in any of the securities mentioned in this article. All information provided is for informational purposes only. For more details, please view the Barchart Disclosure Policy here.
The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.
