Dollar Retreats on Lower Bond Yields and Strength in Stocks
The dollar index (DXY00) on Monday fell by -0.47% and posted a 2-1/2 month low. The dollar Monday posted moderate losses and remains under pressure after last week’s better-than-expected U.S. inflation news and weekly jobs data that point to a slowing labor market bolstered speculation the Fed is down raising interest rates. Also, a late decline in T-note yields Monday weighed on the dollar. In addition, strength in stocks on Monday curbed liquidity demand for the dollar.
U.S. economic news Monday was weaker than expected and bearish for the dollar after Oct leading indicators fell -0.8% m/m, weaker than expectations of -0.7% m/m and the biggest decline in 6 months.
Monday’s Fed comments were slightly hawkish and bullish for the dollar when Richmond Fed President Barkin said, "I see inflation being stubborn, and that makes the case for me being higher for longer" on interest rates.
The markets are discounting a 0% chance for a +25 bp rate hike at the next FOMC meeting on Dec 12-13 FOMC and a 1% chance for that +25 bp rate hike at the following FOMC meeting on Jan 30-31, 2024. The markets are then discounting a 29% chance for a -25 bp rate cut at the March 19-20, 2024, FOMC meeting and a 71% chance for that same -25 bp rate cut at the Apr 30-May 1, 2024, FOMC meeting.
EUR/USD (^EURUSD) on Monday rose by +0.27% and posted a 2-1/2 month high. A weaker dollar on Monday gave the euro a boost. Also, hawkish comments Monday from ECB Governing Council member Wunsch supported EUR/USD when he warned the ECB may have to raise interest rates again if overly dovish market expectations undermine the ECB’s policy stance.
ECB Governing Council member Wunsch stated that the ECB may have to raise interest rates again if investor bets on monetary easing undermine the central bank's policy stance as the markets are taking an "optimistic" view by discounting the possibility of further rate hikes and expecting a rate cut by the ECB as soon as April.
USD/JPY (^USDJPY) on Monday fell by -0.86%. The yen on Monday rallied for the third straight session and posted a 1-1/2 month high against the dollar. Speculation that the Fed is nearing the end of its policy tightening is undercutting the dollar to the yen’s benefit. Gains in the yen accelerated Monday after T-note yields gave up an early advance and moved lower.
December gold (GCZ3) Monday closed down -4.40 (-0.22%), and Dec silver (SIZ23) closed down -0.238 (-1.00%). Precious metals prices Monday posted moderate losses. Higher global bond yields on Monday undercut precious metals prices. Also, hawkish central bank comments weighed on gold. ECB Governing Council member Wunsch warned the ECB might have to raise interest rates again if investor bets on monetary easing undermine the central bank's policy stance. Also, Richmond Fed President Barkin said he favors higher interest rates for longer due to stubborn inflation. Losses in metals were limited after the dollar index Monday dropped to a 2-1/2 month low.
More Forex News from Barchart
- Stocks Push Higher on Positive Corporate News
- Dollar Drops on Expectations the Fed is Done Raising Interest Rates
- Stocks Slightly Higher on Positive Corporate News
- Dollar Dips as Weak U.S. Economic News Knocks Bond Yields Lower
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.