The dollar index (DXY00) on Monday rose by +0.04% and posted modest gains. The as-expected increase in the U.S. Dec NAHB housing market index report Monday and higher T-note yields were supportive factors for the dollar. Gains in the dollar on Monday were muted as stocks rallied, which curbed liquidity demand for the dollar.
Monday’s U.S. economic news was right on expectations and supportive of the dollar. The Dec NAHB housing market index rose +3 to 37, right on expectations.
Hawkish Fed comments on Monday were supportive of the dollar. Cleveland Fed President Mester warned that financial markets are "a little bit ahead" on policy normalization by penciling in interest rate cuts early next year.
The markets are discounting the chances for a -25 bp rate cut at 8% for the Jan 30-31 FOMC meeting and at 75% for the March 19-20 meeting.
EUR/USD (^EURUSD) on Monday rose by +0.21%. On Monday, the euro posted moderate gains on hawkish comments from ECB Governing Council members Kazimir and Vasle, who pushed back on speculation the ECB would begin cutting interest rates early next year. Gains in the euro were limited after a gauge of German business confidence unexpectedly declined.
ECB Governing Council member Kazimir said, "The policy mistake of premature easing would be more significant than the risk of staying tight for too long."
ECB Governing Council member Vasle said, "Market expectations for interest rate cuts are premature in my view, both with regard to the start of cuts and the totality of the moves."
The German Dec IFO business climate index unexpectedly fell -0.8 to 86.4, weaker than expectations of an increase to 87.7.
Swaps tied to ECB meeting dates are discounting the chances for a -25 bp rate hike at 8% for the January 25 ECB meeting and 35% for the March 7 meeting.
USD/JPY (^USDJPY) on Monday rose by +0.54%. The yen on Monday was under pressure from higher T-note yields. Also, position squaring weighed on the yen ahead of the results of the 2-day BOJ meeting that ends Tuesday, where the BOJ is widely expected to maintain its negative interest rate policy.
February gold (GCG4) Monday closed +4.80 (+0.24%), and Mar silver (SIH24) closed -0.047 (-0.39%). Gold and silver prices Monday settled mixed. A stronger dollar Monday was bearish for metals prices. Gold found support Monday after Goldman Sachs raised its 12-month price target for gold to $2,175 an ounce, citing a more dovish Fed and a weaker dollar. However, higher global bond yields Monday were bearish for metals. In addition, hawkish central bank comments are negative for precious metals after Cleveland Fed President Mester and ECB Governing Council members Kazimir and Vasle pushed back against any speculation of central bank rate cuts early next year. In addition, strength in stocks Monday curbed the 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.
