The dollar index (DXY00) on Thursday fell slightly by -0.05% after weak U.S. economic news knocked bond yields lower and weakened the dollar’s interest rate differentials. The dollar was also undercut by dovish comments Thursday from Fed Governor Cook and Cleveland Fed President Mester, who signaled they favor the Fed pausing rate hikes. The dollar saw underlying support as weakness in stocks boosted liquidity demand for the dollar.
Thursday’s U.S. economic news was mostly weaker-than-expected and bearish for the dollar. U.S. weekly initial unemployment claims rose +13,000 to 231,000, showing a weaker labor market than expectations of 220,000. Also, weekly continuing claims rose +32,000 to a 2-year high of 1.865 million, showing a weaker labor market than expectations of 1.843 million. In addition, Oct manufacturing production fell -0.7% m/m, weaker than expectations of -0.4% m/m and the biggest decline in 4 months. Finally, the Nov NAHB housing market index unexpectedly fell -6 to an 11-month low of 34, weaker than expectations of no change at 40.
On the positive side, the Nov Philadelphia Fed business outlook survey rose +3.1 to -5.9, stronger than expectations of -8.0.
Fed comments Thursday were on the dovish side and bearish for the dollar. Cleveland Fed President Mester signaled she favors the Fed pausing rate hikes when she said the current funds rate positions the Fed well and whether further rate hikes are needed depends on the economy. Also, Fed Governor Cook said she is "attuned to the risk of an unnecessarily sharp decline in economic activity and employment" in some sectors of the economy from tighter financial conditions that could be a harbinger of further stress.
The markets are discounting a 0% chance for a +25 bp rate hike at the next FOMC meeting on Dec 12-13 FOMC and a 0% chance for that +25 bp rate hike at the following FOMC meeting on Jan 30-31, 2024. The markets are then discounting a 35% chance for a -25 bp rate cut at the March 19-20, 2024, FOMC meeting and an 84% chance for that same -25 bp rate cut at the Apr 30-May 1, 2024, FOMC meeting.
EUR/USD (^EURUSD) on Thursday rose slightly and posted a 2-1/2 month high. The main bullish factor for the euro Thursday was a weaker dollar. Also, a decline in T-note yields following weaker-than-expected U.S. economic news Thursday on jobless claims, manufacturing production, and the Nov NAHB housing market index weakened the dollar’s interest rate differentials versus the euro.
USD/JPY (^USDJPY) on Thursday fell by -0.46%. The yen on Thursday rallied moderately against the dollar. Thursday’s better-than-expected Japanese trade news boosted the yen, as did a stronger-than-expected Japan Sep core machine orders report. Also, the decline in T-note yields Thursday was supportive of the yen.
Japan Oct exports rose +1.6%y/y, stronger than expectations of +1.0% y/y. Also, Oct imports fell -12.5% y/y, a smaller decline than expectations of -12.8% y/y.
Japan Sep core machine orders rose +1.4% m/m, stronger than expectations of +0.9% m/m.
The Japan Sep tertiary index fell -1.0% m/m, weaker than expectations of -0.1% m/m and the biggest decline in 6 months.
December gold (GCZ3) Thursday closed up +23.00 (+1.17%), and Dec silver (SIZ23) closed up +0.395 (+1.68%). Precious metals prices Thursday posted moderate gains, with gold climbing to a 1-1/2 week high and silver climbing to a 2-1/2 month high. A weaker dollar Thursday was supportive of metals prices. Also, a decline in global bond yields Thursday was bullish for precious metals. In addition, Thursday’s weaker-than-expected U.S. economic reports were dovish for Fed policy and bullish for precious 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.
