The dollar index (DXY00) on Friday fell slightly by -0.08%, giving back some ground after closing mildly higher on Wednesday and Thursday. 

The dollar was undercut by an improved U.S. inflation outlook that was dovish for Fed policy.  The dollar was also undercut by reduced safe-haven demand due to the mild rally in stocks.  However, the dollar was underpinned by Friday’s +7 bp rise in the 10-year T-note yield to 3.75%.

Friday’s raft of U.S. economic news was mixed for the dollar.  The U.S. deflator report was largely in line with market expectations but nevertheless showed a decline in the deflator figures that pointed to an improved U.S. inflation outlook.

The Nov U.S. PCE deflator, the Fed’s preferred inflation measure, eased to +0.1% m/m and +5.5% y/y from Oct’s revised +0.4% m/m and +6.1% y/y and was in line with market expectations.  The Nov core PCE deflator of +0.2% m/m was in line with market expectations and was down slightly from Oct’s revised +0.3% m/m.  On a year-on-year basis, the Nov core deflator eased to +4.7% from Oct’s +5.0% but was slightly above expectations of +4.6%.

Nov real personal spending was unchanged m/m, slightly weaker than expectations of +0.1% and down from Oct’s +0.5%.  Nov personal income fell to +0.1% m/m from Oct’s revised +0.9% and was slightly weaker than expectations of +0.2%.

Friday’s Nov durable goods orders report of -2.1% m/m was weaker than expectations of -1.0%, and Oct was revised lower to +0.7% from +1.1%. The Nov core capital goods orders report (ex-defense and aircraft) of +0.2% m/m was slightly stronger than expectations of unchanged, but Oct was revised lower to +0.3% m/m from +0.6%. 

The final-Dec University of Michigan consumer sentiment index was revised higher by +0.6 points to 59.7 from the preliminary-Dec level of 59.1, which was stronger than expectations for an unrevised figure of 59.1. The final-Dec figure of 59.7 was up by +2.9 points from November’s 5-month low of 56.8.  The final-Dec figure of 59.7 is only 9.7 points above the 42-year low of 50.0 posted earlier this year in June.

Nov new home sales rose by +5.8% to 640,000, which was much stronger than expectations for a drop to 600,000.  The report suggested that demand may be stabilizing after the 30-year mortgage rate has eased sharply by -88 bp to 6.20% from the late-October 20-year high of  7.08%.

EUR/USD (^EURUSD) on Friday rose by +0.17%.    USD/JPY (^USDJPY) rose by +0.39%. 

February gold (GCG3) on Friday closed up +8.90 (+0.50%), and March silver (SIH23) closed up +0.298 (+1.26%).  Precious metals Friday saw support from the slightly weaker dollar.  In addition, industrial metals demand received a boost from the stronger-than-expected U.S. new home sales report.

• Stocks Stabilize after Positive U.S. Inflation News
• Dollar Gains on Higher Bond Yields and Weak Stocks
• Stocks Slide on Chip Stocks and Hawkish Economic News
• Dollar Moves Higher as Yen Relinquishes Some of Tuesday’s Sharp Gains