The dollar index (DXY00) today is up by +0.22% and posted a 2-week high. The dollar is seeing support today on weakness in the Chinese yuan after Reuters reported that Chinese policymakers are considering allowing the yuan to depreciate, abandoning its stable-currency policy to compensate for any impact from US tariffs. Also, weakness in the yen boosted the dollar as the yen fell to a 2-week low today on a Bloomberg report that said the BOJ is in no hurry to raise interest rates.
The dollar fell back from its best levels today after the US Nov CPI report came in right on expectations, bolstering the outlook for the FOMC to cut interest rates by 25 bp at next week’s meeting. The chances for a 25 bp Fed rate cut rose to 96% from 86% after the release of the Nov CPI report.
US Nov CPI rose +0.3% m/m and +2.7% y/y, right on expectations. Also, Nov CPI ex-food and energy rose +0.3% m/m and +3.3% y/y, right on expectations.
The markets are discounting the chances at 96% for a -25 bp rate cut at the December 17-18 FOMC meeting.
EUR/USD (^EURUSD) today is down -0.18%. The euro today extended this week’s losses on expectations that the ECB would cut interest rates by 25 bp at Thursday’s policy meeting. Losses in the euro were contained after the dollar fell back from its best levels on the Fed-friendly US Nov CPI report, which boosted the chances for a Fed rate cut next week.
Swaps are discounting the chances at 100% for a -25 bp rate cut by the ECB for Thursday’s meeting and at 5% for a -50 bp rate cut at the same meeting.
USD/JPY (^USDJPY) today is up by +0.19%. The yen today extended this week’s slide to a 2-week low against the dollar after Bloomberg reported the BOJ is in no hurry to raise interest rates. Losses in the yen are limited after today’s news showed Japan's Nov PPI rose more than expected, and the Q4 BSI large manufacturing business conditions index rose to a 3-year high, hawkish factors for BOJ policy. Lower T-note yields today are also supportive of the yen.
Japan Nov PPI rose +0.3% m/m and +3.7% y/y, stronger than expectations of +0.2% m/m and +3.4% y/y, with the +3.7% y/y gain the largest year-on-year increase in 16 months.
The Japan Q4 BSI large manufacturing business conditions index rose to 6.3 from 4.5 in Q3, the strongest in 3 years.
Bloomberg reported that BOJ officials see little cost to waiting before raising interest rates, dampening chances that the BOJ will raise interest rates at its December 19 meeting.
February gold (GCG25) today is up +31.40 (+1.16%), and March silver (SIH25) is up +0.188 (+0.57%). Precious metals today are trading higher, with gold and silver posting 5-week highs. Today’s US Nov CPI report came on right on expectations, which boosted the chances for a 25 bp Fed rate cut at next week’s FOMC meeting to 96% from 86% before the report, a bullish factor for precious metals. Also, today’s decline in T-note yields is supportive of precious metals. Precious metals prices also have safe-haven support with the collapse of the Syrian government and the escalation of hostilities in the Ukraine-Russia conflict. Finally, gold found support as a store of value from today’s Bloomberg report that said the BOJ is in no hurry to raise interest rates.
Today’s strength in stocks has curbed some safe-haven demand for precious metals. Also, a stronger dollar today is negative for precious metals. Silver prices were undercut today by a Reuters report that said Chinese policymakers are considering allowing the yuan to depreciate, abandoning the current stable-currency policy to compensate for any impact from US tariffs. A softer yuan will make commodities, including silver, more expensive for importers.
