The dollar index (DXY00) on Tuesday fell by -0.22%. The dollar Tuesday posted moderate losses but remained above last Friday’s 4-3/4 month low. Strength in equity markets Tuesday reduced liquidity demand for the dollar. Also, a decline in T-note yields on Tuesday weighed on the dollar. Losses in the dollar were contained as geopolitical risks boosted safe-haven demand for the dollar after the U.S. launched military strikes in Iraq against terrorist groups accused of a series of drone attacks on American troops.
U.S. economic news Tuesday showed strength and was supportive of the dollar. The Nov Chicago Fed national activity index rose +0.69 to a 4-month high of 0.03. Also, the Oct S&P CoreLogic composite-20 home price index rose +4.87% y/y, the most in 11 months. In addition, the Dec Dallas Fed manufacturing outlook index rose +10.6 to an 11-month high of -9.3, stronger than expectations of -17.0.
The markets are discounting the chances for a -25 bp rate cut at 16% for the next FOMC meeting on Jan 30-31 and at 97% for the following meeting on March 19-20.
EUR/USD (^EURUSD) on Tuesday rose by +0.30% and posted a 4-1/2 month high. The dollar’s weakness on Tuesday was the main supportive factor for the euro. Tuesday's Forex trading activity in the euro was muted, with European markets closed for the Boxing Day holiday.
Swaps are pricing in the chances for a -25 bp rate cut by the ECB at 3% for its next meeting on Jan 25 and at 60% for the following meeting on March 7.
USD/JPY (^USDJPY) on Tuesday rose by +0.06%. The yen weakened Tuesday on dovish comments from BOJ Governor Ueda, who said he was in no hurry to end the BOJ’s ultra-easy monetary policy. Losses in the yen were limited due to lower T-note yields. Tuesday’s Japanese economic news was mixed for the yen.
Japan Nov PPI services prices rose +2.3% y/y, unchanged from Oct and weaker than expectations of +2.4% y/y.
The Japan Nov jobless rate was unchanged at 2.5%, right on expectations. However, the Nov job-to-applicant ratio unexpectedly fell -0.2 to 1.28, weaker than expectations of no change at 1.30 and a sign of a softer labor market.
The Japan Oct leading index CI was revised upward by +0.2 to 108.9 from the previously reported 108.7.
February gold (GCG4) Tuesday closed +0.70 (+0.03%), and Mar silver (SIH24) closed -0.169 (-0.69%). Gold and silver on Tuesday settled mixed. Gold prices Tuesday saw support from a weaker dollar and lower T-note yields. Gold prices are also supported by expectations that the Federal Reserve will begin cutting interest rates next year. Strength in stocks on Tuesday reduced the safe-haven demand for precious metals and weighed on silver prices.
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.
