Dollar Tumbles on Dovish Powell Comments
The dollar index (DXY00) on Wednesday fell by -0.90%. The dollar fell Wednesday afternoon after Fed Chair Powell said the Fed would begin to slow its pace of interest rate increases at next month’s FOMC meeting.
Wednesday’s U.S. economic news was mixed for the dollar. On the bearish side, the Nov ADP employment change rose +127,000, showing a weaker labor market than expectations of +200,000 and the smallest increase in 22 months. Also, the Nov MNI Chicago PMI unexpectedly fell -8.0 to a 2-1/2 year low of 37.2, weaker than expectations of an increase to 47.0. However, on the bullish side, Q3 GDP was revised upward by +0.3 to 2.9% (q/q annualized), stronger than expectations of 2.8%. Also, Oct JOLTS job openings fell -353,000 to 10.334 million, showing a stronger labor market than expectations of a decline to 10.250 million.
Fed Chair Powell said the time for moderating the rate hike pace might come as soon as the December FOMC meeting. He added that the Fed would need restrictive policy for "some time," and the rate peak is likely "somewhat higher" than September forecasts.
Fed Governor Cook said it would be prudent for the Fed to make smaller interest-rate increases as it determines how high it will need to go to tame inflation.
The Chinese yuan rallied to a 2-week high Wednesday as the easing of Covid restrictions in some parts of China sparked some optimism about an economic reopening.
EUR/USD (^EURUSD) on Wednesday rose by +0.90%. Dollar weakness Wednesday boosted the euro. Also, higher German bund yields Wednesday strengthened the euro’s interest rate differentials. On the negative side, Wednesday’s economic news showed weaker Eurozone consumer prices and a weaker German labor market, which may prompt the ECB to slow the pace of its interest rate hikes.
Eurozone Nov CPI rose +10.0% y/y, a smaller pace of increase than expectations of +10.4% y/y. Nov core CPI rose a record +5.0% y/y, right on expectations and unchanged from Oct.
German Nov unemployment rose by +17,000, above expectations of +13,500 and a sign of a weaker labor market. Also, the German Nov unemployment rate unexpectedly rose +0.1 to a 17-month high of 5.6%, showing a weaker labor market than expectations of no change at 5.5%.
USD/JPY (^USDJPY) on Wednesday fell by -0.63%. The yen Wednesday recovered from early losses and moved higher after comments from Fed Chair Powell knocked T-note yields lower and strengthened the yen. The yen Wednesday initially moved lower on signs of weakness in Japan’s economy after economic news showed Japan’s factory output fell more than expected.
Japan Oct industrial production fell -2.6% m/m, weaker than expectations of -1.8% m/m and the biggest decline in 5 months.
December gold (GCZ2) on Wednesday closed down -2.40 (-0.14%), and December silver (SIZ22) closed up +0.346 (+1.63%). Precious metals Wednesday settled mixed, with silver climbing to a 2-week high. Higher T-note yields early Wednesday weighed on gold prices. Silver rallied Wednesday after China eased Covid restrictions in some parts of the country, which will boost economic activity that is positive for industrial metals demand. Gold prices recovered most of their losses and moved even higher after the close of trading Wednesday afternoon as the dollar tumbled when Fed Chair Powell signaled the Fed would slow down its pace of rate hikes at next month’s FOMC meeting.
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