The dollar index (DXY00) on Tuesday rose by +0.12%. The dollar on Tuesday recovered from a 2-1/2 month low and posted modest gains. The dollar found support from the Oct 31-Nov 1 FOMC meeting minutes, where policymakers saw interest rates remaining restrictive for “some time." The dollar on Tuesday initially opened lower on weaker-than-expected U.S Chicago Fed and existing home sales reports, which were dovish for Fed policy. Also, Tuesday’s action by China to boost stimulus pushed the yuan to a 3-3/4 month high against the dollar.
U.S. economic news Tuesday was weaker than expected and bearish for the dollar. The Oct Chicago Fed national activity index fell -0.47 to a 7-month low of -0.49, weaker than expectations of zero. Also, Oct existing home sales fell -4.1% m/m to a 13-year low of 3.79 million, weaker than expectations of 3.90 million.
Tuesday’s minutes of the Oct 31-Nov1 FOMC meeting were neutral to slightly hawkish and supportive of the dollar. The minutes stated, "All participants agreed that the committee was in a position to proceed carefully and that policy decisions at every meeting would continue to be based on the totality of incoming information." Also, "All on the FOMC saw rates remaining restrictive for some time."
The markets are discounting a 5% chance for a +25 bp rate hike at the next FOMC meeting on Dec 12-13 FOMC and a 5% chance for that +25 bp rate hike at the following FOMC meeting on Jan 30-31, 2024. The markets are then discounting a 24% chance for a -25 bp rate cut at the March 19-20, 2024, FOMC meeting and a 72% chance for that same -25 bp rate cut at the Apr 30-May 1, 2024, FOMC meeting.
EUR/USD (^EURUSD) on Tuesday fell by -0.22%. The euro on Tuesday fell back from a 3-1/2 month high and posted moderate losses. A recovery in the dollar on Tuesday weighed on the euro after the dollar rebounded from a 2-1/2 month low and moved higher. EUR/USD was also under pressure on dovish comments from ECB Governing Council member Simkus, who signaled that he favors keeping ECB policy steady. The euro Tuesday initially moved higher on signs of strength in the Eurozone economy after Eurozone Oct new car registrations rose for the fifteenth consecutive month.
ECB President Lagarde said the ECB can't declare victory over inflation just yet and will have to remain "attentive" until it's firmly headed back to the 2% goal.
Comments from ECB Governing Council member Simkus suggest he favors keeping ECB policy steady when he said, "There's no reason to speak about a further increase this December, and market expectations that there will be ECB interest rate cuts in a few months are too optimistic in my view."
Eurozone Oct new car registrations rose +14.6% y/y to 855,000 units, the fifteenth consecutive month registrations have increased.
USD/JPY (^USDJPY) on Tuesday fell by -0.06%. The yen on Tuesday rallied for the fourth consecutive session and posted a 2-1/4 month high against the dollar. Tuesday’s weaker-than-expected U.S. Chicago Fed and existing home sales reports boosted speculation that the Fed is nearing the end of its policy tightening and undercut the dollar to the yen’s benefit. The yen also has support Tuesday from lower T-note yields.
December gold (GCZ3) Tuesday closed up +21.30 (+1.08%), and Dec silver (SIZ23) closed up +0.255 (+1.09%). Precious metals prices on Tuesday settled moderately higher, with gold posting a 2-week high. Early weakness in the dollar Tuesday boosted precious metals as the dollar index fell to a 2-1/2 month low. Also, lower global bond yields Tuesday supported gains in precious metals prices. In addition, precious metals found support as Tuesday’s weaker-than-expected U.S. economic reports bolstered speculation that the Fed is finished raising interest rates. Precious metals fell back from their best levels after the dollar index recovered from a 2-1/2 month low and turned higher.
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.
