The dollar index (DXY00) on Wednesday rose by +0.34%. Stronger-than-expected U.S. economic news Wednesday on weekly jobless claims and University of Michigan U.S. Nov consumer sentiment and inflation expectations supported moderate gains in the dollar. Also, higher T-note yields on Wednesday strengthened the dollar’s interest rate differentials.
U.S. economic news Wednesday was mostly better than expected and bullish for the dollar. Weekly initial unemployment claims fell -24,000 to a 5-week low of 209,000, showing a stronger labor market than expectations of 227,000. Also, the University of Michigan U.S. Nov consumer sentiment index was revised upward by +0.9 to 61.3, stronger than expectations of 61.0. In addition, the University of Michigan U.S. Nov 1-year inflation expectations unexpectedly rose +0.1 to a 7-month high of 4.5%, above expectations of no change at 4.4%. On the bearish side, Oct capital goods new orders nondefense ex-aircraft and parts, a proxy for capital spending, unexpectedly fell -0.1% m/m, weaker than expectations of +0.1% m/m.
The markets are discounting a 5% chance for a +25 bp rate hike at the next FOMC meeting on Dec 12-13 FOMC and a 9% chance for that +25 bp rate hike at the following FOMC meeting on Jan 30-31, 2024. The markets are then discounting a 19% chance for a -25 bp rate cut at the March 19-20, 2024, FOMC meeting and a 63% chance for that same -25 bp rate cut at the Apr 30-May 1, 2024, FOMC meeting.
EUR/USD (^EURUSD) on Wednesday fell by -0.26%. Strength in the dollar on Wednesday sparked selling in the euro. Also, Wednesday’s comments from ECB Vice President Guindos weighed on EUR/USD when he said investors may not be fully pricing the risk of a stronger hit to the Eurozone economy from higher interest rates.
The Eurozone Nov consumer confidence indicator rose +0.9 to -16.9, stronger than expectations of -17.8.
ECB Vice President Guindos said, "The outlook that markets are taking with respect to the evolution of the Eurozone economy, I would say, is a little bit sanguine and optimistic."
ECB Governing Council member and Bundesbank President Nagel said, "I believe we are close to the level seen as terminal rate, and ECB interest rates will stay where they are for a while."
USD/JPY (^USDJPY) on Wednesday rose by +0.82%. The yen on Wednesday was under pressure from a stronger dollar. Also, rising T-note yields Wednesday weighed on the yen. In addition, strength in stocks Wednesday curbed the safe-haven demand for the yen.
December gold (GCZ3) Wednesday closed down -8.80 (-0.44%), and Dec silver (SIZ23) closed down -0.181 (-0.76%). Precious metals prices on Wednesday closed moderately lower. A stronger dollar on Wednesday weighed on metals prices. Also, Wednesday’s U.S. economic news that showed a larger-than-expected decline in weekly jobless claims and an unexpected increase in the University of Michigan’s U.S. Nov inflation expectations pushed T-note yields higher and were negative for metals. In addition, Wednesday’s rally in the S&P 500 to a 3-1/2 month high curbed safe-haven demand 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.
