The dollar index (DXY00) Tuesday rose by +0.33%. The dollar on Tuesday rose moderately as comments from several Fed officials dampened speculation the Fed was finished tightening monetary policy. A decline in T-note yields Tuesday limited gains in the dollar.
U.S. economic news Tuesday was bearish for the dollar. The Sep trade deficit increased to -$61.5 billion from -$58.7 billion in Aug, wider than expectations of -$59.8 billion. Also, Sep consumer credit rose +$9.057 billion, weaker than expectations of +$9.500 billion.
Tuesday’s Fed comments dampened speculation the Fed was done raising interest rates and was bullish for the dollar. Minneapolis Fed President Kashkari said that while there have been three months of promising data on inflation, it isn't enough, and "we need to let the data keep coming to us to see if we really have got the inflation genie back in the bottle." Also, Chicago Fed President Goolsbee said policymakers' top priority is returning inflation to its target, and they don't want to "pre-commit" decisions on interest rates. In addition, Fed Governor Bowman said, "I continue to expect that we will need to increase the federal funds rate further to bring inflation down to our 2% target in a timely way."
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 16% 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 Tuesday fell by -0.21%. A stronger dollar Tuesday weighed on the euro. Also, Tuesday’s weaker-than-expected Eurozone economic news was bearish for the euro. German Sep industrial production fell more than expected, and the German S&P Oct construction PMI contracted by the most on record. In addition, an easing of producer price pressures is dovish for ECB policy and bearish for EUR/USD after Eurozone Sep PPI fell by a record -12.4% y/y.
German Sep industrial production fell -1.4% m/m, a bigger decline than expectations of -0.1% m/m.
The German S&P Oct construction PMI fell -1.0 to 38.3, a record pace of contraction.
Eurozone Sep PPI fell by a record -12.4% y/y, the most since data began in 1982.
USD/JPY (^USDJPY) on Tuesday rose by +0.23%. The yen fell moderately lower Tuesday on dollar strength after hawkish Fed comments reduced speculation the Fed was done tightening monetary policy. Also, weaker-than-expected Japanese economic news on wages was dovish for BOJ policy and negative for the yen after Japan Sep real cash earnings fell more than expected. Lower T-note yields Tuesday limited losses in the yen.
Japan Sep household spending fell -2.8% y/y, a smaller decline than expectations of -2.9% y/y.
Japan Sep real cash earnings fell -2.4% y/y, weaker than expectations of -2.3% y/y.
December gold (GCZ3) Tuesday closed down -15.10 (-0.76%), and Dec silver (SIZ23) closed down -0.546 (-2.78%). Precious metals prices retreated on Tuesday, with gold falling to a 2-1/2 week low and silver dropping to a 3-week low. A stronger dollar Tuesday weighed on metals prices. Metals were also under pressure on hawkish Fed comments that dampened speculation the Fed was done raising interest rates. Industrial metals demand concerns also weigh on silver prices after German Sep industrial production fell more than expected and China’s Oct exports dropped more than expected. Lower global bond yields on Tuesday limited losses in 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.
