The dollar index (DXY00) Thursday rose by +0.36% and posted a 2-year high. The dollar recovered from early losses Thursday and moved higher on better-than-expected US economic news. The dollar also had carryover support from Wednesday when the FOMC signaled only 50 bp of interest rate cuts next year, down from a September projection of 100 bp of rate cuts. Strength in stocks today has curbed some liquidity demand for the dollar.
US weekly initial unemployment claims fell -22,000 to 220,000, showing a stronger labor market than expectations of 230,000.
US Q3 GDP was unexpectedly revised upward to 3.1% (q/q annualized), stronger than expectations of no change at 2.8%.
The US Dec Philadelphia Fed business outlook survey unexpectedly fell -10.9 to a 20-month low of -16.4, weaker than expectations of an increase to 2.8.
US Nov leading indicators unexpectedly rose +0.3% m/m, stronger than expectations of a -0.1% m/m decline and the largest increase in 2-3/4 years.
US Nov existing home sales rose +4.8% m/m to an 8-month high of 4.15 million, stronger than expectations of +3.2% to 4.09 million.
The markets are discounting the chances at 9% for a -25 bp rate cut at the January 28-29 FOMC meeting.
EUR/USD (^EURUSD) Thursday rose by +0.14%. The euro posted modest gains after Thursday’s news showed the German Jan GfK consumer confidence index rose more than expected, a supportive factor for the euro. Also, higher European government bond yields Thursday have strengthened the euro’s interest rate differentials. Strength in the dollar Thursday limited gains in the euro.
Eurozone Nov new car registrations fell -1.9% to 869,816 units.
The German Jan GfK consumer confidence index rose +1.8 to -21.3, stronger than expectations of -22.5.
Swaps are discounting the chances at 100% for a -25 bp rate cut by the ECB at its next meeting on January 30 and a 12% chance for a -50 bp rate cut at that meeting.
USD/JPY (^USDJPY) Thursday rose by +1.69%. The yen tumbled to a 4-3/4 month low against the dollar Thursday after the BOJ kept interest rates unchanged, and BOJ Governor Ueda signaled the BOJ is in no hurry to raise interest rates. Higher T-note yields Thursday also weighed on the yen.
As expected, the BOJ kept its overnight call rate unchanged at 0.25%
Comments from BOJ Governor Ueda suggest the BOJ may wait longer before raising interest rate when he said, "The overall picture on wages should be clearer by March or April, and it may take time to assess the full impact of the Trump administration's policies."
February gold (GCG25) Thursday closed down -45.20 (-1.70%), and March silver (SIH25) closed down -1.329 (-4.32%). Precious metals on Thursday sold off sharply, with gold falling to a 1-month low and silver dropping to a 3-1/4 month low. Precious metals plummeted Thursday on negative carryover from Wednesday when the FOMC signaled fewer interest rate cuts next year. Also, Thursday’s rally in the dollar index to a 2-year high undercut metals prices. In addition, soaring global bond yields Thursday were bearish for precious metals prices. Finally, Thursday’s stock recovery curbed safe-haven demand for precious metals.
Precious metals still have safe-haven support from geopolitical risks after the recent collapse of the Syrian government and the escalation of hostilities in the Ukraine-Russia conflict. Silver prices also found support on Thursday after US Q3 GDP was revised upward and Nov existing home sales rose to an 8-month high, supportive factors for industrial metals demand.
