The dollar index (DXY00) on Thursday fell by -0.08%. On Thursday, the dollar posted modest losses on position squaring and long liquidation ahead of Frida’s monthly U.S. payroll report. Losses in the dollar were limited after Thursday’s stronger-than-expected U.S. reports on weekly jobless claims and Dec ADP employment signaled labor market strength that is hawkish for Fed policy.
U.S. economic news Thursday was bullish for the dollar. Weekly initial unemployment claims fell -18,000 to a 2-1/2 month low of 202,000, showing a stronger labor market than expectations of 216,000. Also, the Dec ADP employment change rose +164,000, showing a stronger labor market than expectations of +125,000 and the biggest increase in 4 months.
The markets are discounting the chances for a -25 bp rate cut at 7% for the next FOMC meeting on Jan 30-31 and at a 70% chance for that -25 bp rate cut for the following meeting on March 19-20.
EUR/USD (^EURUSD) on Thursday rose by +0.20%. On Thursday, the euro moved higher as an upward revision to the Eurozone S&P Dec composite PMI boosted European government bond yields and dampened speculation for ECB interest rate cuts.
The Eurozone S&P Dec composite PMI was revised upward by +0.6 to 47.6 from the previously reported 47.0.
The German Dec CPI (EU harmonized) rose +0.2% m/m and +3.8% y/y, weaker than expectations of +0.3% m/m and +3.9% y/y.
Swaps are pricing in the chances for a -25 bp rate cut by the ECB at 5% for its next meeting on January 25 and at 50% for the following meeting on March 7.
USD/JPY (^USDJPY) on Thursday rose by +0.895%. The yen on Thursday extended this week’s losses to a 2-week low against the dollar. Higher T-note yields Thursday were bearish for the yen. Also, speculation that the economic impact of the Noto Peninsula earthquake will delay the ending of negative interest rates by the BOJ weighed on the yen.
February gold (GCG4) Thursday closed +7.20 (+0.35%), and Mar silver (SIH24) closed +0.030 (+0.13%). On Thursday, gold and silver recovered from early losses and closed slightly higher. A weaker dollar on Thursday was supportive for metals. Also, an increase in inflation expectations boosted demand for gold as an inflation hedge after the 10-year inflation breakeven rate Thursday rose to a 3-week high. In addition, heightened geopolitical tensions in the Middle East have boosted safe-haven demand for precious metals.
Gains in precious metals were limited Thursday from higher global bond yields. Also, silver prices were weighed down Thursday on negative carryover from a slide in copper prices to a 3-week low.
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.
