The dollar index (DXY00) on Friday fell by -0.14%. The dollar was undercut by Friday’s decline in the U.S. deflator to a 2-3/4 year low, which supported the market’s view for Fed rate cuts starting in early 2024. On the other hand, the dollar saw underlying support from the +0.7 bp rise in the 10-year T-note yield. The dollar also saw support from stronger-than-expected U.S. economic reports, including durable goods orders and U.S. consumer sentiment.
EUR/USD (^EURUSD) rose by +0.09%, and USD/JPY (^USDJPY) rose by +0.28%.
Friday’s U.S. Nov PCE deflator fell to a 2-3/4 year low of +2.6% y/y from Oct’s revised +2.9% y/y and was weaker than expectations of +2.8%. The Nov core PCE deflator eased to a 2-3/4 year low of +3.2% y/y from Oct’s revised +3.4% and was weaker than expectations of +3.3%. On a 3-month annualized basis, the nominal deflator rose by +1.4%, and the core deflator rose by +2.2%, which were much more compatible with the Fed’s +2% inflation target.
U.S. Nov personal income rose +0.4% m/m, in line with market expectations. Nov personal spending rose by +0.2% m/m, slightly weaker than expectations of +0.3%.
U.S. Nov durable goods orders rose sharply by +5.4% m/m, more than reversing Oct’s revised -5.1% decline and stronger than expectations of +2.3%. Nov durable goods ex-transportation rose +0.5% m/m, stronger than expectations of +0.1%. Nov capital goods orders ex aircraft and defense, a proxy for capital spending, rose +0.8% m/m, stronger than expectations of +0.1%.
U.S. Nov new home sales fell -12.2% m/m to 590,000, much weaker than expectations for a report of 690,000.
The final-Dec U.S. consumer sentiment index from the University of Michigan was revised +0.3 points higher to a 5-month high of 69.7, stronger than market expectations for an unrevised report of 69.4. The revision left the consumer sentiment index up sharply by +8.4 points from the Nov level of 61.3. The University of Michigan’s 5-10 year inflation expectations indicator of +2.9% was slightly stronger than expectations of +2.8%, while the 1-year inflation expectation was unrevised at +3.1%.
The markets are discounting the chances for a -25 bp rate cut at 16% for the next FOMC meeting on Jan 30-31 and at 100% for the following meeting on March 19-20.
Swaps are pricing in the chances for a -25 bp rate cut by the ECB at 3% for its next meeting on Jan 25 and at 60% for the following meeting on March 7.
February gold (GCG4) Friday closed +17.80 (+0.87%), and Mar silver (SIH24) closed -0.020 (-0.08%). Gold prices Friday saw support from the favorable U.S. deflator report, which was dovish for Fed policy. Silver saw some early strength from the U.S. durable goods report, but then fell back to close the day slightly 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.
