The dollar index (DXY00) on Tuesday fell by -0.22%. The dollar was undercut ahead of the results of the Tue/Wed FOMC meeting, where hopes have risen for the Fed to signal that it will start cutting interest rates next year. The dollar was also undercut by Tuesday’s decline in the headline U.S. CPI report to a 5-month low, although that was in line with expectations. The dollar saw underlying support from Tuesday’s -3.1 bp decline in the 10-year T-note yield.
The U.S. Nov CPI eased to +3.1% y/y from +3.2% y/y in Oct, in line with expectations. The Nov CPI report of +3.1% was the smallest increase in 5 months and was just slightly above June’s 2-3/4 year low of +3.0%. The Nov core CPI report of +4.0% y/y was in line with expectations and was unchanged from October’s 2-1/4 year low.
EUR/USD (^EURUSD) rose by +0.27%. The euro found support from signs of confidence in the Eurozone economy after the German Dec ZEW survey expectations of economic growth unexpectedly rose to a 9-month high. Gains in the euro are limited ahead of Thursday’s ECB meeting results.
The German Dec ZEW survey expectations of economic growth unexpectedly rose +4.0 to a 9-month high of 12.8, stronger than expectations of -0.3 to 9.5.
Swaps tied to ECB meeting dates have now priced in a 56% chance that the ECB will reduce its benchmark rate by -25 bp at the March 7 meeting, falling further back from last Friday’s 67%.
USD/JPY (^USDJPY) fell by -0.43%. The yen found support on a weaker dollar. The yen rose even though Japan’s Nov PPI showed the smallest increase in 2-3/4 years, a dovish factor for BOJ policy.
Japan’s Nov PPI eased to +0.3% y/y from +0.9% y/y in Oct, the smallest increase in 2-3/4 years.
February gold (GCG4) Tuesday closed -0.50 (-0.03%), and Mar silver (SIH24) closed -0.042 (-0.18%). Gold and silver prices were undercut by reduced safe-haven demand with Tuesday’s modest rally in stocks. Precious metals prices saw underlying support from the weaker dollar and the -3.1 bp decline in the 10-year T-note yield. Silver prices saw support from news that the German Dec ZEW survey expectations of economic growth index unexpectedly rose to a 9-month high, which was positive for 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.
