The dollar index (DXY00) on Monday rose by +0.44%, recovering some ground after last Friday’s -0.73% decline.
The dollar on Monday saw support from improved US interest rate differentials, with the 10-year T-note yield rising +6 bp. The dollar also saw support after Congress last Friday passed a stop-gap funding bill and averted a US government shutdown, which would have been negative for the US economy.
The dollar rallied despite Monday’s weaker-than-expected US economic reports.
Monday’s Nov US durable goods report was weaker than expected, although capital goods orders were a bit stronger than expected. Nov US durable goods orders fell -1.1% m/m, weaker than expectations of -0.3%, although Oct was revised higher to +0.8% from +0.3%. Nov durable goods orders ex-transportation fell -0.1%, weaker than expectations of +0.3%. Nov capital goods orders ex defense and aircraft, a proxy for capital spending, rose +0.7% m/m, stronger than expectations of +0.1%.
The Nov US new home sales report of +5.9% to 664,000 was weaker than expectations of an increase to 669,000.
The Dec Conference Board US consumer confidence index report of -8.1 to 104.7 was substantially weaker than expectations for an increase to 113.2.
The markets are discounting the chances at 9% for a -25 bp rate cut at the January 28-29 FOMC meeting.
EUR/USD (^EURUSD) fell by -0.23%, mainly due to dollar strength.
The euro saw some underlying support after ECB President Lagarde’s slightly hawkish statement that ECB members remain alert to lingering price pressures in the services sector, although she said members remain confident that the ECB is nearing its CPI target.
The Nov German import price index rose +0.9% m/m and +0.6% y/y, stronger than expectations of +0.6% m/m and +0.3% y/y.
Swaps are discounting the chances at 100% for a -25 bp rate cut by the ECB at its next meeting on January 30 and a 9% chance for a -50 bp rate cut at that meeting.
USD/JPY (^USDJPY) rose +0.47% but consolidated below last Friday’s 5-month high.
The yen fell sharply last week after the BOJ last Thursday kept its overnight call rate unchanged at 0.25%. Also, BOJ Governor Ueda last Thursday suggested the BOJ may wait longer before raising interest rate when he said, “The overall picture on wages should be clearer by March or April, and it may take time to assess the full impact of the Trump administration’s policies.”
February gold (GCG25) closed down -16.90 (-0.64%), while March silver (SIH25) closed up +0.231 (+0.77%). Gold prices Monday were undercut by the stronger dollar and higher T-note yields. Precious metals have continued safe-haven support from geopolitical risks after the recent collapse of the Syrian government and the escalation of hostilities in the Ukraine-Russia conflict.
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.
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