The dollar index (DXY00) Friday rose by +0.49%. The dollar rallied Friday as political uncertainty in Germany weighs on the euro after German Chancellor Scholz called for a snap election in January. The dollar extended its gains Friday after the University of Michigan US Nov consumer sentiment index rose more than expected to a 7-month high. Lower T-note yields on Friday and strength in stocks limited the upside in the dollar.
The University of Michigan US Nov consumer sentiment index rose +2.5 to a 7-month high of 73.0, stronger than expectations of 71.0.
The University of Michigan US Nov inflation expectations report was mixed. The Nov 1-year inflation expectations eased to a 3-3/4 year low of 2.6% from 2.7% in Oct, better than expectations of no change at 2.7%. However, the Nov 5-10 year inflation expectations rose to 3.1% from 3.0% in Oct, stronger than expectations of no change at 3.0%.
The markets are discounting the chances at 65% for a -25 bp rate cut at the December 17-18 FOMC meeting.
EUR/USD (^EURUSD) Friday fell by -0.84%. Dollar strength on Friday undercut the euro. Also, political turmoil in Germany is weighing on the euro, with German Chancellor Scholz calling for a snap election in January after he sacked Free Democratic Party Finance Minister Linder on Wednesday, forfeiting the alliance’s majority in the lower house of parliament.
Swaps are discounting the chances at 100% for a -25 bp rate cut by the ECB for the December 12 meeting and at 17% for a -50 bp rate cut at the same meeting.
USD/JPY (^USDJPY) Friday fell by -0.14%. The yen posted moderate gains Friday on some better-than-expected Japanese economic news. Japan Sep household spending fell less than expected, and the Japan Sep leading index CI rose more than expected to a 4-month high. Lower T-note yields Friday were also supportive of the yen.
The Japan Sep leading index CI rose +2.5 to a 4-month high of 109.4, stronger than expectations of 109.0.
Japan Sep household spending fell -1.1% y/y, stronger than expectations of -1.8% y/y.
December gold (GCZ24) Friday closed down -11.00 (-0.41%), and December silver (SIZ24) closed down -0.406 (-1.27%). Precious metals finished moderately lower on Friday as they were weighed down by a stronger dollar. Also, Friday’s rally in the S&P 500 to a new record high reduced safe-haven demand for precious metals. In addition, gold was undercut by negative carryover from Thursday when Fed Chair Powell said core inflation is still "somewhat elevated," which may lead to a slower pace of Fed interest rate cuts. A bearish factor for silver prices is speculation that President-elect Trump’s high tariff policies will slow global trade and economic growth, thus undercutting the demand for industrial metals.
Demand for gold as a hedge against inflation may remain strong in the near term on the likelihood that Republicans gain control of the House and Senate, which will make it easier for the Trump administration to push through its lower tax, higher tariff, and looser regulation policies, which could revive inflation. Also, the ongoing hostilities in the Middle East continue to boost safe-haven demand for precious metals.
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.
