The dollar index (DXY00) Friday gave up an early advance and finished slightly lower by -0.07%. The dollar was under pressure Friday after the University of Michigan U.S. Nov consumer sentiment fell more than expected to a 6-month low. Also, Friday’s rally in the S&P 500 to a 7-week high reduced liquidity demand for the dollar.
The University of Michigan U.S. Nov consumer sentiment index fell -3.4 to a 6-month low of 60.4, weaker than expectations of 63.7.
Fed comments Friday were mixed for the dollar. On the negative side, Atlanta Fed President Bostic suggested he favors pausing Fed rate hikes when he said, "I think we will get to our 2% target without us having to do anything more." On the positive side, San Francisco Fed President Daly said if inflation "continues to move sideways, and the labor market and GDP growth remain solid or strong, we'll probably have to raise rates again."
The markets are discounting a 10% chance for a +25 bp rate hike at the next FOMC meeting on Dec 12-13 FOMC and a 24% chance for that +25 bp rate hike at the following FOMC meeting on Jan 30-31, 2024. The markets are then expecting the FOMC to begin cutting rates by mid-2024 in response to an expected slowdown in the U.S. economy.
EUR/USD (^EURUSD) on Friday rose by +0.15%. Strength in European government bond yields Friday supported modest gains in the euro. The upside in EUR/USD was limited by dovish comments from ECB President Lagarde that suggest she favors pausing ECB rate hikes.
Friday’s comments from ECB President Lagarde suggest she favors pausing ECB rate hikes and were bearish for the euro when she said that keeping the deposit rate at its current 4% should be enough to tame inflation.
USD/JPY (^USDJPY) on Friday rose by +0.13%. The yen on Friday fell to a new 1-week low against the dollar. Central bank divergence is undercutting the yen as the BOJ maintains negative interest rates and QE while other G-7 central banks tighten their monetary policies. Higher T-note yields Friday also weighed on the yen.
December gold (GCZ3) Friday closed down -32.10 (-1.63%), and Dec silver (SIZ23) closed down -0.624 (-2.72%). Precious metals prices Friday retreated, with gold falling to a 3-week low and silver dropping to a 1-month low. Negative carryover from Thursday’s hawkish comments from Fed Chair Powell weighed on precious metals when he said policymakers are "not confident" they have achieved the stance to return inflation to the Fed's 2% target. Also, concerns about an escalation of the Israeli-Hamas war have faded, curbing safe-haven demand for precious metals. In addition, Friday’s rally in stocks curbed safe-haven demand for precious metals.
On the positive side for precious metals was Friday’s dovish central bank comments after Atlanta Fed President Bostic and ECB President Lagarde signaled they favored pausing interest rate hikes. Gold prices also garnered support from Friday’s news that showed the University of Michigan U.S. Nov inflation expectations unexpectedly rose, boosting demand for gold as an inflation hedge.
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.
