The dollar index (DXY00) Monday rose by +0.09%. The dollar on Monday recovered from early losses and posted modest gains. Higher T-note yields today were supportive of the dollar. Also, the weakness in stocks on Monday boosted some liquidity demand for the dollar.
The dollar on Monday initially moved lower on strength in the yuan after Chinese leaders signaled it would expand fiscal spending and ramp up “extraordinary policy adjustment” to boost the economy. Also, an unexpected decline in US Oct wholesale sales was bearish for the dollar. In addition, the dollar is also weighed down by expectations that the FOMC will cut interest rates by 25 bp at next week’s policy meeting.
US Oct wholesale trade sales unexpectedly fell -0.1% m/m, weaker than expectations of +0.2% m/m and the first decline in four months.
The markets are discounting the chances at 86% for a -25 bp rate cut at the December 17-18 FOMC meeting.
EUR/USD (^EURUSD) Monday fell by -0.19%. The euro on Monday gave up an early advance and turned lower after the dollar index recovered from early losses and moved higher. The euro was also under pressure after the Eurozone Dec Sentix investor confidence index unexpectedly fell to a 13-month low. In addition, expectations for the ECB to cut interest rates by 25 bp at Thursday’s policy meeting are bearish for the euro.
The Eurozone Dec Sentix investor confidence index unexpectedly fell -4.7 to a 13-month low of -17.5, weaker than expectations of an increase to -12.3.
Swaps are discounting the chances at 100% for a -25 bp rate cut by the ECB for Thursday’s meeting and at 7% for a -50 bp rate cut at the same meeting.
USD/JPY (^USDJPY) Monday rose by +0.85%. The yen tumbled to a 1-week low Monday on comments from Japanese Prime Minister Ishiba, who said Japan had not escaped deflation yet, which dampened speculation that the BOJ would hike interest rates at the December 19 policy meeting. Also, higher T-note yields on Monday undercut the yen. On the supportive side of the yen was Monday’s stronger-than-expected Japanese economic news on Q3 GDP and the Nov eco watchers outlook survey.
The Japan Nov eco watchers outlook survey rose +1.1 to 49.4, stronger than expectations of 48.7.
Japan's Q3 GDP was revised upward to +1.2% (q/q annualized) from the previously reported +1.0%.
February gold (GCG25) Monday closed up +26.20 (+0.99%), and March silver (SIH25) closed up +1.023 (+3.24%). Precious metals on Monday rallied, with gold posting a 2-week high and silver posting a 1-month high. Heightened geopolitical risks in the Middle East boosted safe-haven demand for precious metals amid the collapse of the Syrian government. Gold also saw support from an increase in demand from China after the People’s Bank of China said on Saturday that it bought 160,000 ounces of gold last month, its first purchase since April. Silver prices garnered support Monday after China’s Politburo vowed to boost fiscal measures and stimulus to revive the economy, which supports industrial metals demand. Finally, the escalation of hostilities in the Ukraine-Russia conflict supports safe-haven demand for precious metals.
Precious metals fell back from their best levels Monday after the dollar index recovered from early losses and turned higher. Also, higher T-note yields on Monday were bearish for precious metals.
