The dollar index (DXY00) Monday rose by +0.69%. The dollar rallied Monday and garnered support from weakness in the euro due to political turmoil in France after France’s far-right National Rally party said it would back a no-confidence vote against Prime Minister Barnier’s government due to a stand-off over France’s budget. Higher T-note yields on Monday are also supportive of the dollar. In addition, Monday’s rally in the S&P 500 to a new record high curbed liquidity demand for the dollar. The dollar extended its gains after Monday’s US economic news on Oct construction spending and Nov ISM manufacturing rose more than expected, hawkish factors for Fed policy.
The US Nov ISM manufacturing index rose +1.9 to a 5-month high of 48.4, stronger than expectations of 47.5.
US Oct construction spending rose +0.4% m/m, stronger than expectations of +0.2% m/m.
Monday’s comments from Atlanta Fed President Bostic were neutral for the dollar when he said, "The risks to achieving the FOMC's dual mandates of maximum employment and price stability have shifted such that they are roughly in balance, so we likewise should begin shifting monetary policy toward a stance that neither stimulates nor restrains economic activity,"
The markets are discounting the chances at 64% for a -25 bp rate cut at the December 17-18 FOMC meeting.
EUR/USD (^EURUSD) Monday fell by -0.64%. Political turmoil in France is weighing on the euro after Far-Right leader Le Pen said her National Rally party will back a no-confidence motion against Prime Minster Barnier’s government after he failed to agree to all of the National Rally party’s demands on next year’s budget. Also, dovish comments from ECB Governing Council member Kazaks undercut the euro when he said the ECB is debating a larger 50 bp cut in interest rates next week.
The German Nov S&P manufacturing PMI was revised downward by -0.2 to 43.0 from the previously reported 43.2.
ECB Governing Council member Kazaks said the ECB will likely cut interest rates when it meets next week and that a bigger move is currently up for debate.
Swaps are discounting the chances at 100% for a -25 bp rate cut by the ECB for the December 12 meeting and at 19% for a -50 bp rate cut at the same meeting.
USD/JPY (^USDJPY) Monday fell by -0.31%. The yen recovered from early losses on Monday and rallied to a 1-1/2 month high against the dollar. Hawkish comments from BOJ Governor Ueda boosted the yen when he said the next rate hike by the BOJ is “nearing,” suggesting the BOJ may raise rates at this month’s policy meeting. Also, stronger-than-expected Japanese economic news on Q3 capital spending supported the yen. Higher T-note yields on Monday initially weighed on the yen.
Japan's Q3 capital spending rose +8.1% y/y, stronger than expectations of +6.7% y/y. Q3 capital spending ex-software rose +9.5% y/y, stronger than expectations of +8.2% y/y.
BOJ Governor Ueda said interest rate hikes from the BOJ are "nearing" as economic trends develop in line with the BOJ's forecasts.
February gold (GCG25) Monday closed down -22.50 (-0.84%), and March silver (SIH25) closed down -0.244 (-0.78%). Precious metals on Monday settled moderately lower. Monday’s dollar strength weighed on metals prices. Also, higher T-note yields on Monday were bearish for precious metals. In addition, hawkish comments from BOJ Governor Ueda were bearish for gold when he said a rate hike by the BOJ is “nearing.” Silver prices also had some negative carryover from Monday’s slide in copper prices to a 2-week low.
Losses in precious metals were limited due to dovish comments from ECB Governing Council member Kazaks, who said the ECB is debating a larger 50 bp rate cut for next week’s ECB meeting. Also, ramped-up hostilities in the Ukraine-Russia conflict support safe-haven demand for precious metals. Silver prices garnered support from Monday’s economic news that showed the US Nov ISM manufacturing index and China’s Nov manufacturing PMI rose more than expected, a bullish factor for industrial metals demand.
