The dollar index (DXY00) Thursday rose by +0.24% and posted a 2-week high. The dollar found support Thursday after US Nov PPI rose more than expected, which pushed T-note yields higher and is hawkish for Fed policy. Also, the weakness in the euro Thursday was supportive of the dollar after the ECB cut interest rates as expected, knocking the euro down to a 1-1/2 week low. Gains in the dollar were limited after weekly US jobless claims unexpectedly rose to an 8-week high, a sign of labor market weakness that is dovish for Fed policy.
US Nov PPI final demand rose +3.0% y/y, stronger than expectations of +2.6% y/y and the largest increase in 1-3/4 years. Also, Nov PPI ex-food and energy was unchanged from Oct at 3.4% y/y, stronger than expectations of +3.2% y/y.
US weekly initial unemployment claims unexpectedly rose +17,000 to an 8-week high of 242,000, showing a weaker labor market than expectations of a decline to 220,000.
The markets are discounting the chances at 95% for a -25 bp rate cut at the December 17-18 FOMC meeting.
EUR/USD (^EURUSD) Thursday fell by -0.21% and posted a 1-1/2 week low. The euro moved lower Thursday after the ECB cut interest rates by -25 bp and also cut its 2024 Eurozone GDP and inflation forecasts. The euro extended its losses based on dovish comments from ECB President Lagarde, who said the ECB sees risks to growth in the Eurozone as "tilted to the downside."
The ECB, as expected, cut the deposit facility rate by -25 bp to 3.00% from 3.25% and dropped previous wording that monetary policy will remain "sufficiently restrictive for as long as necessary."
The ECB cut its 2024 Eurozone GDP forecast to +0.7% from a prior forecast of +0.8% and cut its 2024 Eurozone inflation forecast to +2.4% from a prior forecast of +2.5%.
ECB President Lagarde said that the latest information suggests the Eurozone economy is losing momentum and is expected to strengthen more slowly than seen earlier. She added that the ECB sees risks to growth "tilted to the downside."
Swaps are discounting the chances at 100% for a -25 bp rate cut by the ECB at its next meeting on January 30.
USD/JPY (^USDJPY) Thursday rose by +0.07%. The yen on Thursday gave up an early advance and finished with modest losses. The yen was under pressure Thursday after a Reuters report said the BOJ sees no need to rush into further rate hikes and is leaning toward keeping interest rates steady when it meets next week. Also, higher T-note yields on Thursday were negative for the yen. The yen on Thursday initially moved high on central bank divergence after the Swiss National Bank cut interest rates by a more-than-expected -50 bp and the ECB cut interest rates by -25 bp.
February gold (GCG25) Thursday closed down -47.30 (-1.72%), and March silver (SIH25) closed down -1.348 (-4.09%). Precious metals on Thursday erased an early advance and sold off sharply. Gold and silver retreated from 5-week highs Thursday and turned lower after the dollar index climbed to a 2-week high. Also, higher T-note yields Thursday weighed on precious metals. Losses in precious metals accelerated Thursday after the US Nov PPI rose more than expected, a hawkish factor for Fed policy.
Precious metals Thursday initially moved higher on increased demand as a store of value after the Swiss National Bank cut interest rates by a more-than-expected -50 bp and the ECB cut interest rates by -25 bp. Precious metals prices also have safe-haven support with the recent collapse of the Syrian government and the escalation of hostilities in the Ukraine-Russia conflict. In addition, gold found support as a store of value from Thursday’s Reuters report that said the BOJ is leaning toward keeping interest rates steady when it meets next week as opposed to the chance of a rate hike. Silver prices were also pressured after the ECB cut its Eurozone GDP forecast, a negative factor for industrial metals demand.
