The dollar index (DXY00) on Friday increased slightly by +0.03%. The dollar Friday was whipsawed in volatile trade. The dollar climbed to a 3-week high Friday morning after the stronger-than-expected U.S. Dec payrolls report dampened expectations that the Fed would soon cut interest rates. However, the dollar gave up its advance and turned lower mid-morning after the U.S. Dec ISM services index weakened more than expected. T-note yields then rose into the close on Friday, helping the dollar recover its losses to settle slightly higher. Weakness in stocks on Friday also boosted liquidity demand for the dollar.
U.S. Dec nonfarm payrolls rose +216,000, stronger than expectations of +175,000. Also, the Dec unemployment rate was unchanged at 3.7%, stronger than expectations of an increase to 3.8%.
U.S. Dec average hourly earnings rose +0.4% m/m and +4.1% y/y, stronger than expectations of +0.3% m/m and +3.9% y/y.
The U.S. Dec ISM services index fell -2.1 to a 7-month low of 50.6, weaker than expectations of 52.5.
U.S. Nov factory orders rose +2.6% m/m, stronger than expectations of +2.4% m/m and the biggest increase in 2-3/4 years.
The markets are discounting the chances for a -25 bp rate cut at 7% for the next FOMC meeting on Jan 30-31 and at a 70% chance for that -25 bp rate cut for the following meeting on March 19-20.
EUR/USD (^EURUSD) on Friday fell by -0.05% and posted a 3-week low. The euro Friday gave up early gains and turned lower due to the stronger dollar. The euro Friday initially moved higher after the Eurozone Dec CPI report showed prices accelerated from November, reducing expectations for the ECB to cut interest rates.
Eurozone Dec CPI rose +2.9% y/y from +2.4% y/y in Nov, right on expectations. Dec core CPI eased to +3.4% y/y from +3.6% y/y in Nov, right on expectations and the smallest pace of increase in 21 months.
German Nov retail sales fell -2.5% m/m, weaker than expectations of -0.5% m/m and the biggest decline in 19 months.
Swaps are pricing in the chances for a -25 bp rate cut by the ECB at 4% for its next meeting on January 25 and at 49% for the following meeting on March 7.
USD/JPY (^USDJPY) on Friday rose by +0.03%. The yen on Friday extended this week’s losses to a 3-week low against the dollar. Higher T-note yields Friday were bearish for the yen. On Friday, the yen briefly recovered its losses and moved higher after the weaker-than-expected U.S. Dec ISM services report knocked T-note yields lower. However, T-note yields then reversed and moved higher into the close, weighing on the yen.
Friday’s Japanese economic news was mixed for the yen. On the negative side, the Dec Jibun Bank services PMI was revised downward by -0.5 to 51.5 from the initially reported 52.0. Conversely, the Dec consumer confidence index rose +1.1 to a 2-year high of 37.2, stronger than expectations of 36.5.
February gold (GCG4) Thursday closed -0.20 (-0.01%), and Mar silver (SIH24) closed +0.128 (+0.55%). Precious metals on Friday settled mixed, with gold posting a 2-1/2 week low. Gold prices were under pressure Friday after a stronger-than-expected U.S. Dec payrolls report, and an acceleration of December consumer prices in the Eurozone dampened expectations that the Fed and ECB will soon be cutting interest rates. However, a reversal in the dollar Friday sparked short covering in metals after the dollar index fell back from a 3-week high and moved lower. Also, a reversal in T-note yields was bullish for precious metals after T-note yields gave up an early advance and moved lower. A supportive factor for silver was the jump in U.S. Nov factory orders by the most in 2-3/4 years, a sign of strong industrial metals demand.
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.
