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Dollar Climbs with Bond Yields on Hawkish Fed Comments

Barchart - Thu Nov 30, 2023

The dollar index (DXY00) on Thursday rose by +0.74%.  The dollar rallied Thursday, rebounding further above Wednesday’s 3-1/2 month low.  Hawkish comments Thursday from New York Fed President Williams and San Francisco Fed President Daly pushed T-note yields higher and boosted the dollar.  Also, a weaker-than-expected Eurozone consumer price report was dovish for ECB policy and weighed on the euro to the dollar’s benefit. 

Thursday’s U.S. economic news was mixed for the dollar.  On the bullish side, the Nov MNI Chicago PMI rose +11.8 to a 1-1/2 year high of 55.8, stronger than expectations of 46.0.  Conversely, weekly continuing claims rose +86,000 to a 2-year high of 1.927 million, showing a weaker labor market than expectations of 1.865 million.  Also, the Oct core PCE deflator, the Fed's preferred gauge of inflation, eased to +3.5% y/y from +3.7% y/y in Sep, right on expectations and the slowest pace of increase in 2-1/2 years.

Hawkish Fed comments on Thursday were bullish for the dollar.  New York Fed President Williams said, "I expect it will be appropriate to maintain a restrictive stance for quite some time to fully restore balance and to bring inflation back to our 2% longer-run goal on a sustained basis."  Also, San Francisco Fed President Daly said interest rates are in a "very good place" to control inflation and talk about rate cuts are "not particularly helpful at the moment."

The markets are discounting a 4% chance for a +25 bp rate hike at the next FOMC meeting on Dec 12-13 FOMC and a 0% chance for that +25 bp rate hike at the following FOMC meeting on Jan 30-31, 2024.  The markets are then discounting a 47% chance for a -25 bp rate cut at the March 19-20, 2024, FOMC meeting and a more than 100% chance for that same -25 bp rate cut at the Apr 30-May 1, 2024, FOMC meeting. 

EUR/USD (^EURUSD) on Thursday fell by -0.78% and posted a 1-week low.  The euro retreated Thursday as a weaker-than-expected Eurozone Nov CPI report bolstered expectations that the ECB is done raising interest rates. Also, the easing price pressures show the swap markets have priced in 100% of a -25 bp ECB rate cut by the April 11 ECB meeting, further undercutting the euro.

The Eurozone Nov CPI eased to +2.4% y/y from +2.9% y/y in Oct, better than expectations of +2.7% y/y and the smallest increase in 2-1/3 years.  Also, Nov core CPI eased to +3.6% y/y from +4.2% y/y in Oct, better than expectations of +3.9% y/y and the smallest increase in 1-1/2 years.

The German Nov unemployment change rose by +22,000, showing a weaker labor market than expectations of +20,000. 

German Oct retail sales rose +1.1% m/m, stronger than expectations +0.4% m/m and the biggest increase in 13 months.

The Italian Nov unemployment rate unexpectedly rose +0.2 to a 6-month high of 7.8%, showing a weaker labor market than expectations of no change at 7.4%.

USD/JPY (^USDJPY) on Thursday rose by +0.71%.  The yen on Thursday was under pressure from a stronger dollar and higher T-note yields.  Also, dovish comments Thursday from BOJ board member Nakamura undercut the yen when he said the Japanese economy still needs the BOJ’s yield-curve control program and negative interest rates and “now is not the time” to adjust monetary policy. 

Thursday’s Japanese economic news was mixed for the yen.  On the bearish side, Oct retail sales unexpectedly fell -1.6% m/m, weaker than expectations of a +0.4% m/m increase and the biggest decline in 2-1/2 years.  Conversely, the Nov consumer confidence index unexpectedly rose +0.4 to 36.1, stronger than expectations of a decline to 35.6.  Also, Oct industrial production rose +1.0 % m/m, stronger than expectations of +0.8% m/m and the biggest increase in 4 months.

December gold (GCZ3) Thursday closed down -9.00 (-0.44%), and Dec silver (SIZ23) closed up +0.221 (+0.88%).  Precious metals prices on Thursday settled mixed, with silver climbing to a 6-1/2 month high.  A stronger dollar Thursday was bearish for metals prices.  Also, a jump in T-note yields Thursday was negative for precious metals.  Gold prices also retreated on hawkish comments from New York Fed President Williams Fed and San Francisco Fed President Daly, who both signaled monetary policy should remain restrictive.  Silver prices found support Thursday on stronger-than-expected global economic news that was bullish for industrial metals demand after the U.S. Nov MNI Chicago PMI rose more than expected to a 1-1/2 year high, and Japan Oct industrial production rose 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.