The dollar index (DXY00) on Tuesday fell by -0.34% and posted a 3-1/2 month low. The dollar Tuesday was under pressure on dovish comments from Fed Governor Waller, who said that Fed policy is well-positioned, signaling he favors a continued pause to Fed rate hikes. Also, hawkish ECB comments Tuesday boosted EUR/USD to a 3-1/2 month high and undercut the dollar. The dollar recovered from its worst levels after U.S. Nov consumer confidence rose more than expected.
Tuesday’s U.S. economic news was mixed for the dollar. On the bearish side, the Nov Richmond Fed manufacturing survey fell -8 to -5, weaker than expectations of 1. Conversely, the Sep CoreLogic composite-20 home price index rose +3.92% y/y, stronger than expectations of +3.90% and the largest increase in 9 months. Also, the Conference Board U.S. Nov consumer confidence index rose +2.9 to 102.0, stronger than expectations of 101.0.
Tuesday’s Comments from Fed Governor Waller suggest he favors pausing Fed rate hikes and was bearish for the dollar when he said, "I am increasingly confident that Fed policy is currently positioned to slow the economy and get inflation back to 2%."
The markets are discounting a 4% chance for a +25 bp rate hike at the next FOMC meeting on Dec 12-13 FOMC and a 6% chance for that +25 bp rate hike at the following FOMC meeting on Jan 30-31, 2024. The markets are then discounting a 28% chance for a -25 bp rate cut at the March 19-20, 2024, FOMC meeting and an 80% chance for that same -25 bp rate cut at the Apr 30-May 1, 2024, FOMC meeting.
EUR/USD (^EURUSD) on Tuesday rose by +0.23% and posted a 3-1/2 month high. A weaker dollar on Tuesday encouraged buying of the euro. Also, hawkish comments Tuesday from ECB Governing Council member and Bundesbank President Nagel boosted the euro when he said the ECB isn’t at the point where it should consider lowering interest rates.
The Eurozone Oct M3 money supply fell -1.0% y/y, weaker than expectations of -0.9% y/y.
The German Dec GfK consumer confidence index unexpectedly rose +0.5 to -27.8, stronger than expectations of a decline to -28.2.
ECB Governing Council member and Bundesbank President Nagel said, "It would be premature for the ECB to lower interest rates soon or to speculate about such steps."
USD/JPY (^USDJPY) on Tuesday fell by -0.80%. The yen on Tuesday rallied moderately against the dollar. The yen found support Tuesday on some month-end rebalancing and repatriation of yen back to Japanese exporters. Also, a drop in T-note yields Tuesday was bullish for the yen.
December gold (GCZ3) Tuesday closed up +27.60 (+1.37%), and Dec silver (SIZ23) closed up +0.254 (+1.03%). Precious metals prices on Tuesday closed moderately higher, with gold posting a 6-1/2 month high and silver climbing to a 3-month high. Tuesday’s slump in the dollar index to a 3-1/2 month low was bullish for metals prices. Also, lower global bond yields on Tuesday were supportive for precious metals. In addition, dovish comments Tuesday from Fed Governor Waller were positive for gold when he signaled that he favored a pause in Fed rate hikes.
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.
