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U.S. Economic Strength Boosts the Dollar

Barchart - Thu Jan 26, 2023

The dollar index (DXY00) on Thursday rose by +0.19%.  The dollar Thursday recovered from a 7-3/4 month low and posted moderate gains.  Better-than-expected U.S. economic news Thursday showed economic strength that is hawkish for Fed policy, which pushed bond yields and the dollar higher.  However, strength in stocks Thursday has curbed liquidity demand for the dollar and limited the dollar’s upside.   

Stronger-than-expected U.S. economic data Thursday was bullish for the dollar.  Weekly initial unemployment claims unexpectedly fell -6,000 to a 9-month low of 186,000, showing a stronger labor market than expectations of an increase to 205,000.  Also, Q4 GDP rose +2.9% (q/q annualized), stronger than expectations of +2.6%.  In addition, Dec new home sales unexpectedly rose +2.3% m/m to 616,000, stronger than expectations of a decline to 612,000. Finally, Dec durable goods orders rose +5.6% m/m, stronger than expectations of +2.5% m/m and the biggest increase in nearly 2-1/2 years.

EUR/USD (^EURUSD) on Thursday fell by -0.25%.   The euro Thursday fell back from a 9-month high and posted moderate losses.  A recovery in the dollar from overnight losses sparked long liquidation in EUR/USD.  Higher European government bond yields limited losses in EUR/USD, with the 10-year German bund climbing +5.8 bp Thursday to 2.216%.  

The Italian Jan consumer confidence index unexpectedly fell -1.6 to 100.9, weaker than expectations of no change at 102.5.

USD/JPY (^USDJPY) on Thursday rose by +0.52%.   The yen was under pressure Thursday after an account of the January BOJ meeting dampened speculation that the BOJ would soon end its ultra-easy monetary policy.  A BOJ policy maker at the January meeting said more time was needed for December’s yield curve control adjustment to have an impact on the functioning of markets and that there is still “a long way to go” to achieve the BOJ’s sustainable price target.  In addition, higher T-note yields Thursday were also bearish for the yen. 

The Japan Dec PPI services prices rose +1.5% y/y, weaker than expectations of +1.6% y/y and the smallest increase in 9 months.

February gold (GCG3) on Thursday closed down -12.60 (-0.65%), and March silver (SIH23) closed up +0.079 (+0.33%).  Precious metals Thursday settled mixed, with silver posting a 1-week high.  Gold fell back from a 9-month high Thursday and posted moderate losses after the dollar strengthened.  Also, higher global bond yields Thursday weighed on metals prices.  However, silver prices jumped to a 1-week high on the prospects of stronger industrial metals demand after the U.S. Q4 GDP expanded more than expected.



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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.